Sustainable Finance

What is meant by Sustainable Finance?

Sustainable finance refers to the process of taking Environmental, Social and Governance (ESG) factors into account when making investment decisions, leading to more long-term investments in sustainable economic activities and projects. A sustainable financial system is one that creates, values and transacts financial assets in ways that shape real wealth to serve the long-term needs of an inclusive, environmentally sustainable economy. (Source: UNEP). This type of investment is sometimes known as responsible investment.

When buying a financial instrument or service, you should be aware that it might have different environmental and social impact and therefore you may wish to consider these factors in your investment decision. As an investor, you should be aware that financial instruments with sustainability elements are available in the market.


What are the Environmental, Social and Governance (ESG) factors? 

ESG factors are the elements that an investor might want to consider when investing money, covering multiple issues that might have not  been previously considered when making investment decisions:   

  • Environmental factors consider the impacts of a company on the environment and may include the impact on climate change, pollution, use of renewable energy, use of water, land and other natural resources, production of waste, impact on biodiversity, deforestation and carbon emissions.
  • Social factors consider the human element and how the company performs in relation to social inequality and social integration, work conditions and employees’ diversity, human rights (such as the use of child labour), investment in human capital or economically or socially disadvantaged communities as well as its impacts on mental health.
  • Governance factors deal with how the company is run and may refer to the management structures and diversity, employee compensation, tax compliance, accounting policies and political lobbying.

When taking investment decisions, you may wish to determine the nature of your own sustainability preferences, considering which ESG factors are of importance to you and ensure that the investment is in line with these preferences. When seeking professional financial advice, you should clearly explain your sustainability preferences to your financial advisor.


How can I express my preferences in relation to the sustainability features of financial instruments?

New EU legislation related to Sustainable Finance will require you to disclose information not only about your knowledge and experience, financial needs and investment goals but also about your sustainability preferences when seeking professional financial advice. Service providers are then expected to adequately meet your preferences.

Therefore, think ahead about your sustainability preferences (such as respect for human rights, or the impact on the environment?) before taking an investment decision, so that you will be able to allocate your capital accordingly.


What are ESG risks and why are they important?

When investing you should be aware that the value of your investments is not only affected by the financial performance of the companies you have invested in, but also by Environmental, Social, or Governance risk as well as external shocks (e.g. extreme weather, natural disasters, terrorism etc.).

ESG risks include:

  • financial risks arising from the impact of ESG factors on invested assets
  • public policy, technological advancements and market sentiment that can lead to some activities or industries being phased out
  • the physical impact of global warming that can make some geographic areas higher risk
  • negative financial impacts for companies linked to factors such as inequality, health or labour relations
  • negative financial impacts for companies linked to factors such as executive leadership or bribery and corruption


What is “greenwashing” and what are the associated risks?

The appetite for sustainable investments has increased.  This heightened interest among investors has increased the risk of abuse and led to some businesses taking shortcuts by incorrectly claiming that their products and practices as environment friendly. A business could claim that its product enjoys energy-saving benefits or that it is made from recycled materials. This could be true, partially true, or outright false.

Greenwashing is a marketing and communication strategy which conveys a false or misleading impression about the adherence of a company’s activity to environmentally friendly practices or the environmental benefits of a product or service in order to attract more investors. In other words, companies may make green or sustainable pledges that are inconsistent with what they actually do.

A common example of greenwashing is a fund that is being marketed with a focus on its sustainability goals, despite investing in companies that emit substantial carbon volumes or manufacture products that claim various percentages of post-consumer recycled content without providing evidence.

So how can you distinguish between a sustainable investment, and one which is not so sustainable? The most common red flags that could feature include the following:

  • misleading graphics that include the usage of green colour, mountains, trees, natural landscapes;
  • usage of vague language such as “Eco-friendly” or “natural”, “green”;
  • exaggerated communication on sustainable achievements; and
  • awarding of claims without proof or credentials.

Greenwashing can result in investors being unable to allocate capital towards their sustainable preferences. Furthermore, such firms may be liable to regulatory fines and reputational damage which will ultimately impact the company’s share price, and shareholders’ interests.

In order for companies’ claims to be more credible and legitimate, they must abide by measurable metrics and objectives, such as amount of reduction in emissions or target dates. These should be audited and publicly disclosed in order to prove their authenticity.

When you seek professional financial advice, your financial advisor should take in consideration the greenwashing risk and ensure that your investments meet your sustainable preference and goals by investing in businesses that uphold their commitments to sustainable finance.

Frequently Asked Questions

This section gives you easy access to commonly-asked questions about banking, insurance & investments aspects.

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Protection of Deposits

Question: I have funds in a bank in Malta are denominated in euro. A relative of mine, who for many years resided in Australia, has an account denominated in Australian dollar with the same bank. If our bank fails, are we both covered by the same depositor compensation scheme?

The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the MFSA. The Scheme, which has been in force since 2003, can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment.

The Scheme is managed by a committee appointed by the MFSA and is made up of persons representing the MFSA, the Central Bank, licensed investment firms, the banks and consumers.

The regulations (Legal Notice 369 of 2003) which transpose the EU Directive on Depositor Guarantee Schemes obliges the committee to compensate depositors following a process of due diligence which should not take longer than three months (which may be extended to another six months by the competent authority).

All depositors of Maltese banks are covered up to EUR100,000 (per depositor, per bank) and depositors will no longer have to bear the initial 10% of their losses.

Most types of deposit are covered, including current, deposit and savings accounts. Similarly, most depositors are covered by the Scheme. There are however some depositors who might not be able to claim. Companies which are permitted to draw up abridged balance sheets in terms of the Companies Act are also covered by the Scheme.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits prescribed in the Regulations, subject to eligibility. In respect of deposits held by a person acting as trustee or nominee for one or more beneficial owners, the deposit making up the claim shall be deemed to belong to such beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

A depositor can only submit one claim for all his deposits taken in aggregate against a failed licensed bank, including the depositor’s share in a joint account or a client account, less any amounts due to the bank (such as loans).

The Scheme covers deposits denominated in euro and deposits in the currencies of EEA countries whose currency is not the euro. This means that deposits in Australian dollar are not covered by the scheme.

In the unlikely event of a bank failure and the Scheme needs to compensate depositors, the payout period is 20 working days that are reckoned from the date when the competent authorities determine that a credit institution is unable to repay its deposit liabilities – with a possible extension of 10 working days in exceptional circumstances.

Credit Institutions are also required to be more transparent with regard to the information that they are obliged to provide to current or prospective depositors in connection with the scheme.  The information on the scheme contained in advertising by participants will be subject to certain restrictions in order to prevent adverse repercussions on the stability of the banking system or on depositor confidence.

More information about the Scheme is available from

Question: I have been noticing multiple adverts on newspapers and TV advertising very good rates for fixed deposit account by banks which I had never been aware of. All these adverts claim that my deposit is protected under the Depositor Compensation Scheme but I want to make sure that none of these adverts is misleading – such as for example, enticing me to deposit my hard-earned savings with them on the basis that my deposit is covered by the scheme, when in actual fact it is not.

All banks licensed by the MFSA are required to be members of the Depositor Compensation Scheme. The Scheme provides a level of coverage of up to €100,000 for each depositor in the event that a bank becomes insolvent and therefore is unable to honour its obligations towards such depositors.

In light of the new regulations which came into force in August 2009, all banks are required to indicate clearly that they are members of the Depositor Compensation Scheme in Malta. Very shortly, all banks will also be providing information to their depositors (on demand or through their websites) relating to the scheme including the circumstances under which the scheme would pay compensation. This information is already available on the Depositor Compensation Scheme’s website ( but banks are now also required to provide this information to depositors to enable them to understand better how the scheme works and whether and to what extent their deposits are covered.

In brief, the scheme covers deposits made by individuals and small companies which are allowed to draw up abridged balance sheets in terms of the Companies Act. The scheme covers deposits in the currencies of all EU and EEA (European Economic Area). Other non – EU currencies are excluded. There is no closing date as to the limit of €100,000 (as many depositors continue to think). The limit is per person, per bank so for example, if two banks are unable to honour their obligations at the same time, a depositor is covered for up to that limit for each insolvent bank.

As with diversification, there is absolutely no harm for a depositor to diversify and distribute his/her savings between different banks.

More information on the Depositor Compensation Scheme is available here.

Home Equity Release Scheme

How does it work?

  1. This product offers pensioners the possibility to translate part of the value of their property into a liquid asset.
  2. By entering into this contract, the pensioner will have more cash in hand whilst enjoying their retirement in their own home.
  3. Individuals who subscribe to this scheme will be essentially taking out a loan in exchange for regular income. The loan will be repaid when the property is sold.

Who is offering it and when?

  1. This product can be offered by licensed credit and financial institutions operating in or from Malta.
  2. MFSA is currently working on the regulatory framework that needs to be in place for it to regulate the equity release financial product.
  3. The equity release financial products regulations [Regulations’] will come into force on the 1st of September 2019. After this date no credit or financial institutions can offer such product without being duly authorised.
  4. Any licensed institutions providing such financial products will have one year to comply with the requirements set out in the Regulations published by the Authority.

Any tips?

  1. MFSA encourages interested individuals to seek independent professional advice and weigh their options before entering into an equity release transaction for the first time.
  2. It is your right to receive all the information you need to make an informed decision.
  3. MFSA will issue further updates once the framework comes into force. The public is encouraged to follow the Authority’s channels on Linkedin, Twitter and Facebook, or alternatively visit for the latest updates.
Opening of Bank Accounts

Question: I would like to bring to your attention a problem many parents may be encountering. Once our children are 16 years of age they are told that they can have their own accounts. Knowing my children well, I went over to the bank to request information about my son’s account because I wanted to be certain that he is depositing his pocket-money. However, I was told that I could not be given such access as the account belongs to my son. I informed them that I was the parent and that legally he is still under-age and that my husband and I are still legally responsible for him. However the reply was that this was the practice in banking services and that the parents are consulted only if a request for a loan is made. I find this to be very wrong. At that young age many of them are still irresponsible and still need some guidance from the parents.

Article 188 of the Maltese Civil Code (Of Majority, Interdiction And Incapacitation) states that ‘Majority is fixed at the completion of the eighteenth year of age’. On the other hand, Article 971A of the Civil Code providing with the ability of children over sixteen years to open and operate bank account provides that ‘Notwithstanding any provision of this Code, a child who has attained the age of sixteen years may deposit money in an account opened by the child in his or her own name with any bank, and any money deposited in any such account may only be withdrawn by such child notwithstanding that such money may be subject to the administration, usufruct or authority of any other person. For all purposes of law the child shall with regard to the opening and operation of any such account be considered a major.’

In this respect, paternal authority ceases as soon as a child opens a bank account in his/her name.

Facilities may only be granted to a minor who has attained the age of sixteen years and such minor shall be deemed to be major with regard to obligations contracted by him/her for purposes of trade, if (i) he/she has previously been authorized to that effect by the parent to whose authority he/she is subject, by means of a public deed registered in the Civil Court or, where both parents are dead, interdicted or absent, he has been authorized by the judge of the Civil Court and (ii) a summary of the deed of authorization or of the decree aforementioned has been published by means of a notice in the Government Gazette and in another newspaper.

In this regard, minors who are traders authorized as aforesaid can by reason of their trade charge, hypotheca for personal purposes (home loan).

For instance, banks would not issue a credit card to young adults under 18 years of age. They may only do so if the primary cardholder is either the parent or legal guardian – in that case, the supplementary cardholder may be the young adult. Any debts incurred by suchte and even alienate their property, without any of the formalities prescribed by the civil law. It is important to note that in these instances facilities may only be provided to minors in relation to their trade (business loan) and not supplementary cardholder would be under the responsibility of the primary cardholder.