What services the financial sector can provide

Green finance and sustainable finance: the contribution of capital and financial markets to sustainable transformation is currently being intensively discussed, also at EU level, at the PAGE Ministerial Conference in Berlin and within the German Council for Sustainable Development.

The Federal Environment Minister came straight to one of the key themes of the conference – green finance. At the opening of the high-ranking Partnership for Action on Green Economy (PAGE) Ministerial Conference at the end of March in Berlin, Barbara Hendricks declared that one crucial job is to ‘channel major financial flows into sustainable investments, especially in the infrastructure sector’. During Germany’s G20 Presidency, the private sector’s ability to invest in sustainable green projects is to be further strengthened. The minister also called for common standards, in the field of green bonds for instance. The next day Marlehn Thieme, the Chair of the German Council for Sustainable Development, was one of the speakers at the panel discussion on Transparency and Transformation to consider whether standards of this sort are a good idea and what form they could take.

The PAGE Ministerial Conference in Berlin brought together some 300 leading personalities from governments, civil society, the private sector, development partners, the media and the general public. The conference, held in the city’s Scandic Hotel, was the second of its sort, following the initial conference in Dubai in 2014. All participants at the conference, which was jointly hosted by the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, the International Labour Organization (ILO), the United Nations Environment Programme (UNEP), the United Nations Development Programme (UNDP), the United Nations Institute for Training and Research (UNITAR) and the United Nations Industrial Development Organization (UNIDO), share the common goal of identifying ways for the private sector and financial markets to help realise the UN’s Sustainable Development Goals (SDGs) and the Paris Agreement on climate change.

‘We have no plans’

One of the opening keynote addresses at the conference was given by the American economist Jeffrey Sachs, who described the fight for sustainable development as a ‘very unusual battle’. ‘We are not winning. We have not lost,’ declared the Director of the UN Sustainable Development Solutions Network and the Director of the Earth Institute at Columbia University. His criticism focused primarily on achieving the energy transition, to put power generation on a sustainable basis. Without a meticulous strategic plan it cannot be achieved, he declared. Although today we have a great deal of knowledge about what is technically feasible, what we do not have are plans of this sort, criticised Sachs, with the exception of very few countries. The market will not solve the problem alone, he declared.

Because, he pointed out, the logic of sustainable development and the logic of the financial markets are inherently contradictory. This was also behind the call voiced by Christian Thimann, Group Head of Regulation, Sustainability and Insurance Foresight for the AXA Group. The short-termism of financial markets must be overcome, said Thimann, recently appointed Chair of the European Commission’s High-Level Expert Group on Sustainable Finance. He is responsible for regulation and sustainability within the AXA Group.

Green finance, which in its widest sense can be taken to mean the financing of sustainable development, and in its narrower sense to mean financing measures to counter the adverse impacts of climate change, is also one of the priorities of the German Council for Sustainable Development, as evidenced by its work programme for the period until 2019, adopted by the Council in February. At the PAGE conference, Council Chair Marlehn Thieme advocated ‘smart co-regulation processes with the involvement of private- and public-sector players’. She underlined the contribution that can be made by positive incentives systems and transparency.

Forum for one-on-one discussions

These thoughts are also incorporated in a ‘living document’ that the Council is currently working on, she reported. This discussion paper is to provide a foundation for further talks. ‘On this basis the Council will launch a whole series of discussions in order to achieve a concrete concept for a German Hub for Sustainable Finance, explained Council member Alexander Bassen, who is Professor of Capital Market and Management at the University of Hamburg. He co-authored the draft with fellow Council member Achim Steiner, Director of Oxford Martin School/University of Oxford and recently appointed Director of the United Nations Development Programme (UNDP), and Günther Bachmann, General Secretary of the German Council for Sustainable Development.

Bassen believes that this German Hub for Sustainable Finance’ has a lot to offer. ‘The question is whether the relevant forces can be developed and pooled in Germany and in Europe, to achieve a sort of forum that networks actors, facilitates an exchange of experience, encourages self-organised standards and provides a platform for partnerships.’

Green finance is still very much a niche market, in German-speaking areas at least, explained Bassen. He does however see a window of opportunity to advance the cause at the moment, in the run-up to this summer’s G20 summit. Bassen sees discussion and exchange among actors as a major success factor. ‘A far more intensive exchange is needed between the political level, ministries and market participants such as fund managers,’ he said. ‘So what we hope to see is the stakeholders coming together and engaging in discussion and developing an understanding of one another. This is the only way to change anything.’

Dialogue Invitation

Interested parties are invited to comment a living document on sustainable finance until September 15, 2017 aiming to further refining thesis herein. Statements can be sent until due day with subject „living document Sustainable Finance“ to Yvonne Zwick (yvonne.zwick@nachhaltigkeitsrat.de).