3 March 2022

Recommendations to facilitate the ‘greening’ of the domestic capital market, drawn up as part of a strategic project over the past year and a half in cooperation with the EBRD and involving investment service providers, investors and other market participants, ministries and all other key stakeholders, have been published. The development of the area, being a supplementary vehicle and an alternative for bank financing, has an important role to play in the achievement of sustainability.

The Magyar Nemzeti Bank welcomes the set of recommendations developed, with financial support from the European Commission, as part of an advisory project to make capital markets more sustainable.

A strategy preparation project to facilitate the ‘greening’ of Hungary’s capital market was launched in Hungary in July 2020, with professional support by the European Bank for Reconstruction and Development (EBRD) and involving investment service providers, investors and other market participants, ministries and all other key stakeholders. The comprehensive initiative aimed to enable the capital market to increase its current share in financing investment projects supporting environmental sustainability, and to allow ‘green’ companies to have access to more favourable equity or bond funding.

As a result of the process accompanied by market consultations, a conference and the collection of international best practices, the EBRD and Deloitte as the consultant have recently published recommendations which could help achieve the objectives set.

With the launch of green lending products within bank lending to households and companies in line with the MNB’s Green recommendation and programme, there is a case for a greater involvement of capital market funding in order to ensure a transition to carbon-neutrality and create a circular economy. The advisory report states that there is an estimated financing gap of nearly HUF 4,000 billion to be filled in order to put the Hungarian economy on a carbon-neutral path by 2030.

The Hungarian capital market is considered underdeveloped in a regional comparison, although significant progress has been made recently, thanks in part to the MNB’s Bond Funding for Growth Scheme. The capital market has a huge potential for growth. It is therefore crucially important that progress expected in this area should serve sustainability objectives.

The collection and publication of companies’ non-financial data, the quantitative and qualitative development of domestic ESG investment funds, and the further strengthening of the green bond and green mortgage bond segments are areas where it would be important to make further progress in the coming years.

Based on the recommendations published recently, the MNB, in cooperation with the Budapest Stock Exchange and governmental entities, will work on the development of a strategy to deliver this objective and on the establishment of concrete measures.

Recommendations Report – Designing Recommendations for a Sustainable Capital Markets Strategy and Action Plan for Hungary

Magyar Nemzeti Bank