Mission Green Bulgaria: Experts' Recommendations for the Development of Sustainable Finance in Bulgaria

Some of the participants from the group "Mission Sustainable Finance".

MOVE.BG-initiated Green Restart Coalition has brought together over 50 of Bulgaria's leading experts in the fields of the innovation economy, energy transition, bioeconomy and biomass, smart cities, nature-based solutions, and sustainable finance. In June, motivated by the desire to turn Bulgaria into one of the green and innovative leaders in Europe, they took part in a special event for generating sustainable development ideas "Mission Green Bulgaria". 

During the event, over 150 challenges to Bulgaria's green transformation were outlined, as well as over 150 recommendations to overcome them. The Green Restart Coalition summarized the ideas in a special report containing six thematic chapters, based on the six groups into which the participants were divided:

• Mission Green Innovation
• Mission Energy Independence
• Mission Bioeconomy
• Mission Smart Cities
• Mission Nature-based Solutions
• Mission Sustainable Finance

Today, we present to you the challenges and recommendations, generated by the expert group Mission Sustainable finance. Among the participants in the panel are:

• Associate Professor Manyu Moravenov Ph.D., CEO at the Bulgarian Stock Exchange (BSE) and Chair of Green Finance & Energy Centre, panel moderator
• Maria Marinova, Executive Director at the Bulgarian Venture Capital Association (BVCA), panel rapporteur
• Gergana Papadopoulou, Manager at Financial Market Services Ltd
• Tsanko Arabadjiev, Executive Director and Member of the Managing Board of the Bulgarian Development Bank (BDB)
• Radoslava Maslarska, Chair of the Board of Directors of the Bulgarian Association of Licensed Investment Intermediaries (BALII) and Chair of the Board of Directors of Elana Trading AD
• Victoria Blazheva, Director of Strategy and Business at UniCredit Bulbank Bulgaria
• Evgeny Angelov, Chair of BVCA
• Diana Nikolaeva, Partner, heading the Strategy and Transactions offering in EY Bulgaria, North Macedonia, Albania, and Kosovo

Mission Sustainable Finance

Did you know? 

The concept of sustainable finance stands for measures and proposals to involve the financial sector in the green transformation: how to prioritize the reorientation of capital to invest in a new-type development and to the green economy and to ensure the greening of conventional business, including industrial production and the energy sector.

“Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects”, as stated by the European Commission on its special website dedicated to sustainable finance. 

During the new 2021-2028 programming period, at least 30% of the budgets of EU operational programmes will be committed to sustainable development projects and the percentage has been increased to at least 37% in the national recovery and resilience plans. Notwithstanding these large-scale public investments, the EU has to close a yearly investment gap of almost EUR 180 billion to achieve EU climate and energy targets. 

“A lack of clarity among investors regarding what constitutes a sustainable investment is a contributing factor behind this investment gap and also an obstacle to financing”, according to the European Commission.

“Transforming Europe's economy into a greener, more resilient and circular system will not just reduce our environmental footprint on the planet […] It will also boost competitiveness by improving the efficiency of production processes and reducing the costs of accessing and managing resources.”

Sustainable finance in action

The EU approach to sustainable finance builds on three main pillars in accordance with the European Commission’s Action Plan on Sustainable Finance:

• To reorient capital flows towards sustainable investment
• To manage financial risks stemming from climate change
• To foster transparency

These three objectives are to be achieved through several basic measures. One of them is the requirement for companies to disclose their environmental, social and governance impact, i.e. the ESG disclosures. This measure should encourage investors to orient their capital to businesses with good ESG performance and businesses to invest in the improvement of this performance. The ESG disclosures are expected to be amended by the end of 2022 by updating the rules and expanding the scope of obligated companies.

Another important measure is the Taxonomy for sustainable finance. It is a classification system (a list) of economic activities which the EU institutions define as environmentally sustainable.  The taxonomy is expected to promote private investment because the EU will give priority to the activities listed in the taxonomy through its funds, whereby public investment should provide security and long-termism and thus attract private investors.

The promotion of green bonds of public and private issuers is another important measure. Green bonds are special debt instruments the proceeds of which are to be invested only in the implementation of green projects and policies. At least 30% of the NextGenerationEU funds will be raised through the issuance of green bonds. In 2021, the European Commission proposed a Regulation to create the “European Green Bond Standard” or “EUGBS” which is to be adopted. Many countries have developed their own national rules and frameworks for the issuance of government green bonds and have issued such debt instruments. One of the most recent players in this field is Germany, the lead economy in the EU, which issued its first-ever green bonds. Besides, the German state-owned development bank KfW Group, one of the leading green bond issuers among institutional investors, raised EUR 32.7 billion in that way over the period from 2019 to 2021.

There are many initiatives at the self-regulatory level, too. One of them was promoted by the leading global asset managers who pledged to ensure the climate neutrality of their investment portfolio by 2050.

Challenges

Legislative and administrative challenges

• Lack of a government strategy for the development of sustainable finance in Bulgaria
• Lack of a common coordinated sustainable finance development policy shared between all ministries, including the two leading institutions in this sphere (the Ministry of Finance and the Ministry of the Environment and Water)
• Lack of measures to attract equity and venture capital funds to invest in sustainable development projects
• Lack of a strategy on how public-funded financial instruments could be actively involved in the development of sustainable finance, including the tools of the Fund of Funds and the Bulgarian Development Bank
• Lack of a holistic and long-term approach to ESG disclosures: it is necessary to ensure that the new rules are perceived as an opportunity rather than an obligation
• Lack of a strategy to encourage companies to apply ESG disclosures for businesses that are currently not obligated to do so, including small and medium-sized enterprises
• Lack of a strategy to prepare the companies for which the ESG disclosures will become binding
• Lack of an approach to involve science in the field of the ESG implementation in Bulgaria  and, in a broader context, in the whole range of sustainable finance matters
• Lack of a single platform of the one-stop-shop type for sustainable finance in Bulgaria
• Lack of a national certification system for green business products and services: at present, the only system used in Bulgaria is the EU Ecolabel system but it encompasses only a certain type of activities
• Need for amendments to the Investment Promotion Act to encourage investment in sustainable development projects
• Lack of clarity as to whether Bulgaria intends to issue government green bonds
• Lack of a uniform ESF disclosure standard at the global level: different methodologies lead to different ratings, which might cause distortion of data and uncertainty among businesses and companies

Challenges at the self-regulation level

• Lack of a standing cooperation mechanism among the financial institutions involved in the ESG implementation
• Lack of a cross-sectoral approach to the ESG disclosures, i.e. links of business and the financial sector with the other stakeholders, including researchers
• Lack of a mechanism for the funds to assess the ESG performance of companies as regards new investments and existing companies in their portfolio

Financial challenges

• Lack of financial analysis of the challenges and benefits of the development of various aspects of sustainable finance in Bulgaria
• Lack of financial analysis on how the government could promote the implementation of ESG disclosures, including targeted financial incentives
• Lack of analysis of the financial benefits of the voluntary compliance with the ESG requirements by companies for which ESG disclosures are non-binding

Solutions

Legislative and administrative solutions

• Elaboration of a sustainable finance development strategy in Bulgaria
• Introduction of a standing cooperation mechanism between all ministries, including the two leading institutions in this sphere (the Ministry of Finance and the Ministry of the Environment and Water)
• Implementation of measures to attract equity and venture capital investment funds, e.g. development of instruments through the Fund of Funds or the Bulgarian Development Bank as a public-funded green fund which will also attract private investors and support only sustainable development projects
• Development and implementation of a strategy to develop ESG disclosures in Bulgaria
• Development and implementation of a plan to prepare the Bulgarian companies for the expansion of the scope and the requirements for ESG disclosures
• Development and implementation of a communication campaign on ESG disclosures, their objectives and the opportunities they give for the development of companies
• Development of a communication strategy on the benefits of the voluntary compliance with ESG disclosures, focusing on the opportunities for enhanced competitiveness of small and medium-sized enterprises
• Implementation of measures to attract science to the topic of ESG disclosures and the whole range of sustainable finance matters
• Establishment of a platform of the one-stop-shop type for sustainable finance in Bulgaria
• Analysis of the need for the introduction of a national certification system for green products and services
• Amendments to the Investment Promotion Act to categorize investments in green projects as Class A priority investment projects, thus attracting investors to support green projects in Bulgaria
• Issuance of government green bonds in Bulgaria: the government should become the first large-scale green bond issuer with a view to attracting capital from institutional and private investors. Individual investors could be targeted with a special issue listed for trading on the Bulgarian Stock Exchange. The proceeds from these issues could be used to co-finance the projects under the National Recovery and Resilience Plan. This could promote the development of the market in green instruments in Bulgaria, create conditions for big companies to raise capital for green projects, and provide each citizen with the opportunity to take part in the green transition
• Implementation of a public awareness campaign on green bonds to make investors aware of the opportunities for purchase, what they would receive in exchange and what they should do to join the green transition

Solutions at the self-regulation level

• Development and introduction of a standing cooperation mechanism between the financial institutions involved in the ESG implementation
• Development and introduction of a standing cooperation mechanism as regards ESG issues between the financial sector, business and the other stakeholders, including academia, through the promotion of the existing Green Finance & Energy Centre as a think-tank for sustainable finance and energy building on the expertise of its members who represent the stakeholders (public and private sector, NGOs and academia) on the topic of the green transformation of the economy and the sustainable development of the country
• Development of a mechanism to assess the ESG performance of companies, which is to be used by equity and venture capital investment funds

Financial solutions

• Financial analysis of the challenges and benefits of the development of various aspects of sustainable finance in Bulgaria to be carried out by the government or through a public-private partnership
• Introduction of financial support measures to facilitate the implementation of ESG disclosures, including targeted financial incentives by the government for the use of standardized reporting solutions like the Oxygen platform
• Financial analysis of the voluntary compliance with the ESG requirements by companies for which ESG disclosures are non-binding to be carried out by the government or through a public-private partnership
• Introduction of incentives in the project financing through green bonds or stock: subsidies and preferential tax treatment of the financial results of such projects

The challenges outlined and the solutions generated are based on the shared ideas of the participants in the Mission Sustainable Finance panel. The ideas are summarized and grouped together without any claims that they have been approved unanimously by all participating experts in the panel. 

Read the full “Missin Green Bulgaria”Report here (in English).

Read more about the Green Restart Coalition here (in English).