The Lithuanian financial market is very concentrated and lagging behind the main countries in the field of finance, it is not surprising that sustainable finance is still in the early stages of development. It is currently not easy for sustainable businesses and projects to find sources of funding from local markets. In general, Lithuania does not have adequate financial instruments for this purpose or is not flexible enough: local businesses still tend to rely on traditional financing, i.e. banking rather than attracting investment through equity and bond issues or from alternative sources. As far as the international market is concerned, projects developed in Lithuania are relatively low in value, which makes them less attractive to investors. For this reason, to become a hub and develop an internal market for sustainable finance, Lithuania must first identify them, as well as examine the importance of these issues for the economy of the future, and seek incentives to finance sustainable areas more quickly, from public and private sources. In addition, Vilnius needs greater integration into the Capital Market of the European Union, and for this reason, it is necessary to look for measures that will allow it to offer international investors large projects – worth at least a few hundred million euros.

In the context of the European Green Deal and the Paris Climate Agreement, the role of sustainable finance is discussed almost daily. It is becoming not only one of the most important tools to achieve environmental objectives with high added value for society, but also one of the most interesting investment directions. Unsurprisingly, many experts see sustainable finance as crucial to the future of the economy and to the very concept of well-being. Clear criteria for defining sustainable finance then become essential to create a shared context and promote sustainable finance: this is a significant problem, since sustainable finance has long been discussed without clear standards, and solely on the basis of the definition provided by the European Commission that leaves ample room for interpretation.

A significant step forward has been taken with the adoption by the European Parliament of the taxonomy regulation, which defines which economic activities can be considered sustainable. In total, the regulation provides four conditions for sustainable economic activity: these activities must first contribute effectively to environmental objectives, such as the transition to a circular economy or pollution prevention and control, and must be subject to social protection and sustainable management measures, such as gender equality. In addition, it must be possible to verify all this in practice and according to the criteria approved by the European Commission. Consequently, if the investment is intended for activities that meet the above conditions, they can be considered sustainable. Although the regulation has so far only applied to certain players in the financial markets, such as fund managers and insurance companies, as well as to large companies, a precise definition of sustainable finance is a very important step towards providing greater clarity and specificity.

Companies should already have an interest in carrying out their activities according to sustainability criteria: it is very likely that they will be forced to take this into account, if not because of market pressures, thanks to a regulatory environment that is expected to be increasingly favorable to economic actors operating in accordance with the principles of environmental protection, social responsibility, and good governance. If we look at global capital markets, the benefits of sustainability-oriented businesses and greater resilience in crises are already becoming apparent. Although the example is quite extreme, there are trends in the energy sector that prove it: multinational renewable energy and green technology companies such as Iberdrola or Vestas Wind Systems have shown strong growth in recent years and with the onset of the Covid-19 pandemic the value of the shares of some of them has almost doubled. Fossil fuel companies such as Shell certainly cannot boast of such results; however, Shell and many other traditional companies are working to reorient and make their operations more sustainable. This shows how crucial sustainability is becoming for manufacturing activities in the long term.

It is essential to distinguish between real and perceived sustainability. Greenwashing is a real problem and there are indeed cases where attempts to gain an unfair competitive advantage or profit have been masked by sustainable development. So far, only ratings issued by rating agencies and corporate certification processes have been used to help investors choose appropriate sustainable finance options. However, the lack of common international standards has made it difficult to understand the differences between the criteria used by the different certificate providers. In this respect, it is expected that the European taxonomy regulation will harmonize the methods used by the various rating agencies. Another tool needed to ensure that finance is truly sustainable is to monitor the use of the funds raised. There are many challenges to be overcome in this regard, and the first step has already been taken with the adoption of the Regulation on sustainable financial disclosure: this obliges companies to include specific information on sustainability and costs when concluding contracts and publishing regular reports.

There have recently been positive examples in Lithuania of local companies offering investors sustainable and attractive investment projects. Particular attention is paid to the Ignitis group, which pays great attention to the development of renewable energies and the decarbonization of energy. During this year’s initial share offering, listed on the Nasdaq Baltic and the London Stock Exchange, the group managed to raise €450 million. It is also worth mentioning the activity of the AUGA Group, which develops sustainable organic farming and the business of organic food production in capital markets. The group’s shares are trading on the Nasdaq stock exchanges of the Baltic States. There have also been attempts by the public sector to offer investors green investment products: since 2018, the government has issued 68 million green bonds in three issues for the Condominium Modernization Fund.

With regard to the implementation of sustainable objectives, a significant contribution could come from a specialized body for the promotion of sustainable investments. Such institutions, such as the Green Finance Institute in the UK, Finance for Tomorrow in France, or the Stockholm Sustainable Finance Center in Sweden, are successful in other European countries and help create a favorable environment to accelerate sustainable finance. A similar sustainable investment institution in Lithuania could ensure the standardization of sustainability requirements and the dissemination of relevant information, as well as organize and support discussion between public sector institutions, private companies, and scientific research. Not forgetting that it could help to solve the problems mentioned by encouraging companies to cooperate and combine their projects.