Good morning! I would like to welcome all distinguished guests, Ministers, high-level officials, speakers, and development partners who have gathered here today for the 2022 Ministerial Conference dedicated to Financial and Sustainability Reporting for Debt Transparency and Resilient Recovery. The event is organized with the support of the Austrian Ministry of Finance and the World Bank’s Centre for Financial Reporting Reform, CFRR, which is celebrating its 15-year anniversary.
I want to take this opportunity to thank our counterparts and donors for their continuous cooperation, support and close partnership throughout the years. As we have just seen in the video, CFRR has made a substantial impact across the Europe and Central Asia Region and beyond, with knowledge sharing, professional development, and technical assistance, helping to strengthen institutions and promote economic growth. I am particularly proud of the partnership that we have managed to build with:
- the Austrian Government, and in particular the Austrian Ministry of Finance and the Austrian Development Cooperation;
- the Swiss State Secretariat for Economic Affairs; and
- the European Union.
You have been essential donors and partners over the years in the World Bank’s work on governance reforms, and specifically for enhancing auditing and financial reporting both in the public and private sectors. We look forward to many more fruitful years of collaboration with you and with all of our CFRR partners.
During its history, CFRR has supported countries – especially the 13 countries in the Western Balkans and the EU’s Eastern Partnership – through technical assistance programs for ECA countries including STAREP, PULSAR, and REPARIS for SMEs.
In addition, the FASE program is working to increase the number of qualified accounting technicians in Africa and MENA. These programs have been successful, both through regional and country-specific initiatives. contributing to CFRR’s reputation as a center for excellence, which is demonstrated by the turnout at today’s event and in the video testimonials we just saw.
These are extraordinary times, and in particular for Europe.
The multiple crises that countries are facing today constitute a major setback for development with many people falling back into poverty. Russia’s war in Ukraine and COVID-19 aftershocks have resulted in a steep rise in food and energy prices. The resulting inflation has contributed to rising interest rates, as well as to the risk of stagflation. Subsequent capital outflow to advanced economies has left many developing countries to face depreciated domestic currencies, looming debt crises, the likelihood of recession, and the impacts of climate change.
These combined pressures reduce the fiscal space for governments to meet the needs of their people, constrain their ability to manage debt sustainably, and can draw focus away from greening the economy.
Now more than ever, the CFRR can play a critical role in the region, and beyond, to help countries tackle these challenges with transparent, financial reporting so that resources are managed effectively and efficiently. And now financial reporting will be supplemented with sustainability reporting to support a greener vision needed for investment and economic growth.
CFRR has accomplished much over the 15 years and much more needs to be done. We look forward to continuing this work with all of you.
Good morning everyone. First and foremost, I’m pleased to join this important panel and connect the work of CFRR with regional sustainability and economic recovery initiatives. I would like to start by talking about some of the recent developments affecting the economy of the Europe and Central Asia region.
Russia’s invasion of Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing economies in the region. Regional output is now expected to contract by 0.2 percent in 2022, reflecting negative spillovers from the invasion.
Growth projections for 2023 have been downgraded for most countries in the region due to the ongoing impacts of Russia’s war in Ukraine, weakening growth prospects in the euro area, tighter-than-anticipated monetary policy, and severe commodity market shocks. GDP is set to expand at an anemic pace of 0.3 percent in 2023. However, some countries are more affected than others by the ongoing crisis.
Ukraine’s GDP is projected to contract by about 35 percent in 2022, with economic activity scarred by the destruction of productive capacity, heavy bombardment of energy facilities, damage to arable land, and reduced labor supply. Recovery and reconstruction needs across social, productive, and infrastructure sectors are estimated at around $349 billion, which is more than 1.5 times the size of Ukraine’s pre-war economy in 2021. The invasion of Ukraine has also triggered the largest human displacement crisis in the world today.
World Bank Strategy
The World Bank works with countries in Europe and Central Asia to eliminate poverty and promote shared prosperity, through boosting human capital, enabling markets, facilitating green transitions, and building & strengthening institutions. These medium-term objectives remain highly relevant as we support countries in the region facing the overlapping crises of the war in Ukraine, the ongoing COVID-19 pandemic, and surges in food and energy prices.
At the World Bank we have seen how an environmental lens is needed not only for sectors like energy and water, but in practically all of the areas where we work. This can be true for corporate and government reporting as well. It is exciting to see more and more companies and organizations reporting on how their activities affect the environment, and on how environmental factors affect the sustainability of their operations and profitability.
In the past few years, the green agenda and action on climate change have experienced a strong international push, yet the formulation and implementation of green policies still require greater international coordination. Detailed work at the country level is also important.
Countries in Europe and Central Asia face unique development challenges as a result of climate change. For example:
- Russia’s war on Ukraine has shifted short-term priorities from climate action towards energy security, but climate risks persist.
- Heating is a key driver of energy demand, especially in ECA, which relies heavily on coal and where reliance on gas is more than two times the global average> than 2x global average, meaning decarbonization will face significant technical challenges.
- High fossil fuel dependence, often through state-run energy companies, will have many implications as the green transition is carried out.
- The political economy is also a factor. For the transition to cleaner energy to work, it must also consider the lives and livelihoods of those who stand to lose most from it.
- There is broad citizen support for climate action, but price adjustments usually mean higher prices for consumers, increasing the risks of people experiencing further energy poverty and of disruption to energy intensive industries.
- Presence of the European Union (Green Deal) is a strong driver of climate ambition and policy, although mainly in EU and EU aspiring countries.
- The legacy of ‘unfinished transition’ has resulted in a limited private sector and weak institutions in many ECA countries, which will hamper their ability to formulate and deliver the needed ‘whole-of-economy’ climate transition policies. Climate actions will need to be part of broader structural reforms, leading to a just transition, taking into account the interests of all stakeholders, winners and losers.
- Many countries facing low growth, or fiscal and debt distress, will experience significant fiscal and financing constraints. So unlocking private finance for climate will be critical.
The World Bank Group’s Climate Change Action Plan covering the period 2021-25 and the Europe and Central Asia Climate Change Action Plan Roadmap stress the importance of the financial sector in reallocating capital into green and low-carbon investments, while managing climate-related risks.
One of the enablers of a climate change action plan and sustainable finance is a new global and EU initiative to prepare a new sustainability reporting framework and standards which address gaps and deficiencies of current non-financial reporting. The panel on sustainability reporting later this morning, and additional sessions during the technical workshops tomorrow will further discuss those topics.
The history of the development of the accounting profession and implementation of accounting and auditing standards, has positioned it well for a central role in setting due process and developing standards for sustainability reporting. This is not by chance, but due to the fact that international accounting standards systematize otherwise disparate accounting policies, allow for the presentation of comparable and transparent financial information, and minimize misstatement and errors in reporting and disclosure. In a similar way, CFRR’s ongoing regional programs like STAREP and PULSAR, position it well to incorporate Sustainability Reporting into its support to ECA clients.
As many of you know, the International Financial Reporting Standards Foundation has created a new International Sustainability Standards Board to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions. EU sustainability reporting standards are being developed by the European Financial Reporting Advisory Group (EFRAG) in constructive two-way cooperation with leading international initiatives. We will hear more about these and related initiatives today.
The new sustainability reporting frameworks aim to ensure that there is adequate publicly available information about the risks that sustainability issues present for companies, and the impacts of companies themselves on people and the environment (the so-called “double materiality” concept) in a predefined format, using a new taxonomy and are subject to audit.
Reported information should be comparable, reliable and easy for users to find and make use of with digital technologies. Ultimately it should help reduce systemic risks to the economy, and improve the allocation of financial capital to companies and activities that address social, health and environmental problems.
Finally, it should help build trust by enhancing companies’ accountability for their impact on people and the environment. Having sustainability information available in electronic format should also facilitate monitoring at the country, regional and global levels and inform policy.
This is where all of you come in – as the generators and users of financial and non-financial information. With leadership in this region from the EU, we at the World Bank look forward to continued partnership, through CFRR and our country programs, so that corporate and government reporting can enter a new age of increased transparency and enhanced relevance by including not only financial information but also sustainability reporting covering environmental, social and governance matters.
We look forward to continuing the work with you to push this important agenda forward! Thank you.