Green or not so green?

Many of the firms in Malta acknowledge the need for change, yet specifics remain elusive.

Climate change is definitely a major issue that will affect our lives and that will require major changes in the way our societies and economies operate. But to what extent are local firms aware of the extent of the changes, what are their opinions of the impact of climate mitigating policies, and how will they change over the coming years? These are questions that the Central Bank of Malta posed to 100 Maltese firms, chosen to be representative of the highest relative levels of carbon emissions and therefore likely to be affected in a different manner by policies.

The study indicates that about half of firms believe that general environmental awareness in Malta is low. Quite worringly, firms responded also that while there is some awareness of related legislations, knowledge about the EU’s Fit-For-55, which guides the main climate actions to reduce EU emissions, was very limited. This lack of knowledge was more accentuated the less the level of emissions that firms produced. But, alarmingly more than half of firms do not know the implications of several EU initiatives on their business.

About two out of five firms are not expecting that climate change will create many physical risks to their operations in the medium term, but a third of companies believe there could be a moderate impact over the next 10 years. That said, for longer horizons, there is general consensus that climate change will raise significant risks to operations.

Even though they admitted to not knowing much about existing regulations, 35% of companies contacted still said they think they will be impacted negatively or very negatively by efforts to achieve a carbon-neutral economy. Even here, the positive sentiment is quite strong as 30% of companies surveyed expect the impact to be positive or very positive. Quite strangely, most of these companies operate in highly intensive emitting sectors.

Nearly two thirds of firms believe that they must make changes to their supply chain in order to reduce emission, while three quarters expect to increase investment in more resilient facilities or processes, while accelerating digitalisation. Nearly nine in ten firms surveyed think that climate change will accelerate the take-up of alternative energy sources.

Overall, views on whether climate change mitigation would be a catalyst for changes to production and market structures were mixed. Almost half of the companies surveyed disagree that mitigating climate change will make production less labour intensive and will lead to a shift to a more local supply chain. Yet most agree that mitigating climate change will require them to find new suppliers to decarbonise inputs.

The majority of firms believe that market concentration will rise since not all companies will be able to successfully transition to zero emissions. They also agree that climate change mitigation will make raw materials, components, and energy inputs more costly and therefore will lead them to increase selling prices.

Given the need to invest, most firms think that the overall cost of capital will increase, particularly as there will be a rush to invest in more sustainable products and the development and adoption of new technologies.

The Central Bank’s survey is an eye-opener as it sheds light on the state of preparedness of Maltese firms to these wholesale changes. Many of them acknowledge the need for change, yet specifics remain elusive. The level of proactiveness appears to be very low, and this means that it will be imperative for Government to carry out a significant information campaign to kickstart this change process. 

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