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An additional 180 billion euros annually must be invested in buildings, transport, renewable energies, energy efficiency and much more, estimates the European Commission. To fill the gap, more private capital is urgently needed, concludes the 20-strong group of experts – and lays out on 100 pages of recommendations which regulations need to be changed to achieve this. Not only in order to achieve the Paris targets, but also for implementation of the United Nations 2030 Agenda. “The report is the most comprehensive document ever written on the subject of sustainable finance,” comments Michael Schmidt, member of the Management Board at Deka Investment and one of the experts of the High-Level Expert Group on Sustainable Finance (HLEG). This panel is made up of representatives of banks, universities, insurers, funds and stock exchanges as well as NGOs like WWF, think tanks like the 2° Investing Initiative, the Climate Bonds Initiative (CBI) or Third Generation Environmentalism (E3G). “Europe now has the unique opportunity to build the world’s most sustainable financial system,” says the report, which states clearly early on: there is no single lever with which we can reorient the entire financial system. “We have developed an overall concept. The individual recommendations dovetail closely with one another, and that should definitely be taken into account when implementing them,” explains Schmidt. Moreover, implementation requires synchronisation with the real economy and especially with politics. “We need to finally agree on a sensible price for carbon emissions,” adds Schmidt. Classification of what constitutes sustainable investment Specifically, the report makes a total of 24 suggestions for measures: eight core recommendations, eight cross-sector measures and eight concrete measures, for instance for pension funds or banks. Among the core recommendations is that a clear Europe-wide definition of which investments can at all be labelled as “sustainable” is needed. Such a classification would need to be applicable to all types of investment – from project financing to bonds and equity. It has to be dynamic in that it adjusts to ongoing developments in scientific insight and could be designed to build on pre-existing standards. A matrix has already been developed by the experts: it links various sectors, such as energy, transport, forestry or healthcare, with the global sustainable development goals like access to clean water or reduction of waste. Another core recommendation relates to requiring investors to disclose how they take sustainability into account in their investment decisions. Pension funds in the EU are already required to report on if they include ecological and social aspects in their risk management. However, they are not required to disclose how they apply the ESG criteria (environment, social and governance) concretely to their investment decisions. Further, the report argues in favour of EU labels for green investment funds and green bonds. In particular, the latter would make it easier for ecologically minded companies to raise funding. The experts also see a much more active role for the authorities at EU level that are tasked with financial market oversight. The European Securities and Markets Authority (ESMA) and the European Banking Authority, for instance, should more closely supervise the long-term risks for the financial system that are associated with climate change. The “tragedy of the horizon” A central idea behind the cross-sector measures is the “tragedy of the horizon”, or rather of the mismatched horizon, in the financial sector: investments in sustainability – education, infrastructure, energy – do not yield good results until years or even decades later and thus are not attractive to many fast and speculative financial market players. “Short-termism”, as people sometimes call this type of thinking, is a clear obstacle to more sustainable finance. And the experts do not see a fast solution. They suggest that in a first step the regulations be evaluated with a view to determining which of them promote short-term profit generation. In other areas, the experts express considerably more concrete views – with respect to ratings agencies, for instance: quite simply, they should incorporate ESG criteria into their ratings and disclose their methods of doing so publicly. This also includes educating their staff on topics related to sustainability. Marlehn Thieme, Chairwoman of the German Council for Sustainable Development, describes the report of the HLEG as ambitious. “It is very good because it shows clearly how the future of the financial markets can be oriented. And it shows through its orientation towards practical application that sustainable financial markets are possible,” Thieme comments. “However, it fails to set out a synopsis of various policy areas. With regard to European budget, tax and economic policy, we need a coherent regulatory structure that enables the use of market economy tools.” The Council Chairwoman also points to the key role of the companies themselves. “If we are to make the finance sector sustainable, we need both banks and insurers as well as the companies.” Overall, the report only concerns itself with making recommendations. On 20 February, the EU Finance Ministers will be reviewing the report and in March, the European Commission will present its action plan on sustainable finance, which is to incorporate the experts’ recommendations. A major conference of experts on the topic is scheduled to be held in Brussels on 22 March. The High-Level Expert Group recommends that a working group at EU level be established this year so that it can develop by 2020 an EU classification system for sustainable investments. “Implementation of our report is now in the hands of the EU and the various financial market players,” comments Schmidt. What comes next Council Chairwoman Marlehn Thieme: “Sustainable finance is not mentioned anywhere in the federal government’s coalition agreement. However, as the HLEG report is only a recommendation, political support is needed. The new government must work to promote implementation at EU level of well-designed carbon regulation processes on behalf of sustainable finance and the real economy.” In Germany, the ten recommendations of the Hub for Sustainable Finance have also taken up some of the recommendations of the HLEG report. This open network of financial market players and other stakeholders was initiated in the summer of 2017 by the German Council for Sustainable Development (RNE) and Deutsche Börse. Following a first summit in October 2017 in Frankfurt, the various actors are now called on to make contributions that help promote a sustainable financial system in Germany and establish the topic in mainstream capital market activities. A dedicated project website is currently in the process of being created; until it is completed, the latest information is available at www.h4sf.de. On 22 February, a conference on sustainable finance will be held in Berlin, organised by the Hub together with the German Institute for Economic Research (DIW). The main topic of the conference will be the HLEG report. The conference is, however, already fully booked up." ["post_title"]=> string(68) "EU expert group outlines ways forward for reorienting finance sector" ["post_excerpt"]=> string(314) "At the request of the European Commission, a group of experts has been working for over a year on a catalogue of recommendations on how regulations for financial markets can be changed – to make them more secure and see to it that they support rather than hinder sustainable development. These are their results." ["post_status"]=> string(7) "publish" ["comment_status"]=> string(6) "closed" ["ping_status"]=> string(6) "closed" ["post_password"]=> string(0) "" ["post_name"]=> string(68) "eu-expert-group-outlines-ways-forward-for-reorienting-finance-sector" ["to_ping"]=> string(0) "" ["pinged"]=> string(0) "" ["post_modified"]=> string(19) "2018-04-11 16:41:17" ["post_modified_gmt"]=> string(19) "2018-04-11 14:41:17" ["post_content_filtered"]=> string(0) "" ["post_parent"]=> int(0) ["guid"]=> string(105) "https://www.nachhaltigkeitsrat.de/aktuelles/eu-expertengruppe-zeigt-wege-zu-einer-neuen-finanzwirtschaft/" ["menu_order"]=> int(0) ["post_type"]=> string(4) "post" ["post_mime_type"]=> string(0) "" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" } [1]=> object(WP_Post)#2489 (24) { ["ID"]=> int(8302) ["post_author"]=> string(1) "5" ["post_date"]=> string(19) "2017-11-03 12:30:29" ["post_date_gmt"]=> string(19) "2017-11-03 11:30:29" ["post_content"]=> string(12647) "In the run-up to the conference, the organisations responsible for the Hub for Sustainable Finance outlined in ten recommendations what it would be concerning itself with on a content level. This served to focus the discussion. In six rounds of discussions, the some 200 participants developed ideas and suggestions that can take practical application and quality in the sustainable finance sector forward. The participants were united in their view of the topic’s urgency. “All of you sitting here know where the obstacles to sustainable finance lie, where the limits to your business models are and what is preventing you from scaling up your activities,” affirmed Marlehn Thieme, Chairwoman of the German Sustainability Council (RNE), at the beginning of the Summit. “Join us now in working together to take a decisive step forward in rebuilding our financial system!” she appealed to the audience. A selection of the most important ideas and discussion contributions is presented below: Idea 1: introduce a “green supporting factor” in financial market oversight The idea was put forward by the French banking association in 2016 with the aim of making it easier to mobilise capital for the worldwide energy transition. The green supporting factor could also be expanded to other sustainable projects as needed, however. In order to effectively assess factors with an impact on risks and opportunities, Klaus Tiedeken, member of the Management Board of Kreissparkasse Köln, argued in favour of applying the German Sustainability Code, which can be used for much more than just public reporting. Gerald Podobnik, Global Head of Capital Solutions of Deutsche Bank, gave the French idea more concrete form: banking regulations prescribe that banks maintain certain capital reserves in line with the risks associated with various types of investment as security should the investment default. This also applies when banks invest in solar parks or wind farms, for instance. The green supporting factor would allow banks to maintain lower reserves for investments related to the energy transition – because they are contributing to minimising the risks of climate change and thus to stabilising the financial system. The financial market oversight would have to be the body to introduce such a factor as it decides on the capital requirements for the various types of investment. Idea 2: change accounting regulations Christian Thimann, Chairman of the European Commission High-Level Expert Group on Sustainable Finance and member of the Management Board of insurer AXA, made the suggestion that accounting regulations be amended to favour sustainable investments. “Financial regulations in recent years were mainly strongly aimed at achieving short-term stabilisation,” explained Thimann. Accounting practice among companies is currently dominated by the mark-to-market method, whereby the value of an investment is determined for a given valuation date and entered correspondingly in the balance sheet. However, this is often in conflict with the idea that sustainable investments require a longer time horizon to become profitable. Different accounting regulations could weight this long-term potential of sustainable investments higher and thus allow them to positively influence the balance sheet. “How can we allow players to give out more long-term credits? How can we oblige them to control long-term risks with reasonable proportionality?” Thimann commented, summarising the key challenge. Idea 3: supervisory boards must have sustainability qualifications Patricia Geibel-Conrad, member of the Supervisory Board of Hochtief AG, argued that the qualifications of supervisory boards should be a starting point. The members of such boards needed to be sensitive to the topic of climate change and have basic knowledge of sustainable development, for instance. Such minimum requirements have long since entered public debate in the Anglo-American context as well as topics like diversity. Geibel-Conrad added that such qualifications for supervisory and management boards were among other things to be discussed at the next World Economic Forum in January 2018 in Davos. In the US, the discussion is centred around the key idea of “proxy access”. This rule gives even smaller-volume shareholders of corporations the opportunity to nominate candidates to board positions – and thereby strengthen representation of the topic of climate change, for instance. Idea 4: integrate sustainability report and group management report The topic of integrated reporting, meaning company reporting with an integrated management and sustainability report, was discussed at many different points. Currently, the two reports are usually published separately. As explained by Dieter W. Horst, expert for sustainable finance at PricewaterhouseCoopers, this means for companies that their key systems and processes are not yet tailored to the topic of sustainability. At 80 per cent of companies, the finance and accounting teams that prepare these key financial indicators comprise a few dozen or even a hundred people. The sustainability department on the other hand sometimes consists of a single individual or perhaps a handful of staff. Kristina Jeromin, Head of Group Sustainability at Deutsche Börse AG, also sees enhancing focus on materiality and the integrated perspective in reporting as a solution to this problem. Idea 5: re-evaluate EU-wide CSR reporting obligation Which indicators from a sustainability report are so important that a shareholder would say: I will or I will not buy this stock? This was the question posed by Ralf Frank, Secretary General and Managing Director of the German Association of Financial Analysts and Asset Management Professionals (DVFA). The root of this question is the new EU requirement that as of the financial year 2017 large companies must publish sustainability or corporate social responsibility reports (CSR reports for short). “The main point of interest will be which indicators lastly are so important that they have relevance with respect to the management report and thus for an understanding of the course of business,” explained Frank. Dieter W. Horst of PricewaterhouseCoopers believes that the CSR reporting obligation could possibly also show that there are no sustainability indicators which are so important that they need to be included in the management report – this would mean the new reporting obligation has missed the mark entirely. Several speakers therefore proposed that the CSR reporting obligation be reviewed next year. Should the indicators determined as a result of the obligation not have relevance for companies’ annual reports and management reports, the regulation would need to be revised. Idea 6: climate risks could become relevant for banking oversight Germany’s central bank is considering including the risks of climate change for the finance sector in its supervisory oversight for banks, as presented by Joachim Wuermeling, member of the Management Board of the Deutsche Bundesbank. Two aspects are the main focus: firstly, hurricanes and storms can have direct impact on the financial situation of banks and insurers. Should extreme weather situations increase, the risks would also rise and eventually become uninsurable. On top of this, according to Wuermeling, transitory risks on the path to becoming a low-carbon economy are a factor: many fossil fuels that are currently listed as assets in companies’ balance sheets cannot be consumed as a result of the climate targets. “One thing is clear: the sooner we become active, the less pressure there will be to act later,” comments Wuermeling. This is why the Bundesbank is expanding its analysis capabilities and striving to achieve a better understanding of climate risks and their impact on financial market institutions. Going forward, climate risks may possibly be taken into account in banking oversight. Idea 7: the users need to have a voice Anja Mikus, CEO/CIO of the foundation Fund for the Financing of Nuclear Waste Disposal, called for those who make investment decisions on a daily basis to be better integrated into the discussion on a sustainable finance sector. As she sees it, the problem is that there is no uniform definition of what exactly sustainability in the investment process means. “How is a portfolio manager to treat it? How does sustainability enter into the investment process?” she asked. This question can only be answered if a portfolio manager is sitting at the table too. This would also help reduce scepticism among many managers as to whether sustainable investments can actually yield substantial returns. Studies have shown they can, however, “studies don’t help – actual practice is the deciding factor,” added Mikus. Idea 8: big data can help, but the “can” needs to be qualified Big data, artificial intelligence and learning machines will change the financial industry for the better and can help with regard to sustainability as well. This was the thesis of Konrad Sippel, Head of the Deutsche Börse Content Lab. “When it comes to the availability of information and the ability to quantitatively evaluate it in order to explain why sustainability makes sense, more data and improved analysis will be needed,” he says. Other discussion participants suggested that more data does not necessarily equal better data. It always depends on why the data is being collected and the data’s quality. The future of the Hub for Sustainable Finance The first task of the H4SF going forward will be to catch up. The financial sector and investors in Germany are lagging behind their European and even global peers. Because it is not the case in Germany that statutory obligations and requirements are quite simply decreed, the initiators will have to help themselves. Via the H4SF, they aim to make discussion on this topic more clearly heard in Germany. The great popularity of the event and the participants’ high willingness to engage in discussion are confirmation for the initiators that the initiative for a more sustainable finance sector should be taken forward. The aims of the H4SF are to be discussed with the federal government and parliament at the earliest possible opportunity. As Günther Bachmann, Secretary General of the Sustainability Council, made clear in the final panel in this context, the significance of results of the European discussion will need to be debated for Germany. Additional discussion events with expert participation are planned for 2018. With the pioneers of sustainable finance continuing to be encouraged and bolstered, it is now the turn of the mainstream to be won over for the topic of sustainable finance. Günther Bachmann went on to describe how, in future, professional investors should make decisions not solely on the basis of financial indicators, but also make sustainability a factor in assessing risk and opportunity and thus include it in their investment decisions. Federal action would then take comparable considerations into account. Through the event, the Steering Committee and the Council for Sustainable Development were given a great deal of cause for thought that will now be taken on board in shaping the Hub. A recording of the Summit covering all items on the programme in full will be available for a period of six months at www.h4sf.de. Updates and concrete next steps will be communicated on the project website and in the Council’s newsletter." ["post_title"]=> string(108) "Germany’s first Sustainable Finance Summit: new contributions to discourse on a sustainable finance sector" ["post_excerpt"]=> string(379) "The Hub for Sustainable Finance has concluded its first public convening. Representatives of the finance sector, supervisory authorities, civil society, the sciences and the political arena discussed how the financial system can become more sustainable. Here, you can read a selection of key contributions to the discussion – and about what the Hub will be doing going forward." 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An additional 180 billion euros annually must be invested in buildings, transport, renewable energies, energy efficiency and much more, estimates the European Commission. To fill the gap, more private capital is urgently needed, concludes the 20-strong group of experts – and lays out on 100 pages of recommendations which regulations need to be changed to achieve this. Not only in order to achieve the Paris targets, but also for implementation of the United Nations 2030 Agenda. “The report is the most comprehensive document ever written on the subject of sustainable finance,” comments Michael Schmidt, member of the Management Board at Deka Investment and one of the experts of the High-Level Expert Group on Sustainable Finance (HLEG). This panel is made up of representatives of banks, universities, insurers, funds and stock exchanges as well as NGOs like WWF, think tanks like the 2° Investing Initiative, the Climate Bonds Initiative (CBI) or Third Generation Environmentalism (E3G). “Europe now has the unique opportunity to build the world’s most sustainable financial system,” says the report, which states clearly early on: there is no single lever with which we can reorient the entire financial system. “We have developed an overall concept. The individual recommendations dovetail closely with one another, and that should definitely be taken into account when implementing them,” explains Schmidt. Moreover, implementation requires synchronisation with the real economy and especially with politics. “We need to finally agree on a sensible price for carbon emissions,” adds Schmidt. Classification of what constitutes sustainable investment Specifically, the report makes a total of 24 suggestions for measures: eight core recommendations, eight cross-sector measures and eight concrete measures, for instance for pension funds or banks. Among the core recommendations is that a clear Europe-wide definition of which investments can at all be labelled as “sustainable” is needed. Such a classification would need to be applicable to all types of investment – from project financing to bonds and equity. It has to be dynamic in that it adjusts to ongoing developments in scientific insight and could be designed to build on pre-existing standards. A matrix has already been developed by the experts: it links various sectors, such as energy, transport, forestry or healthcare, with the global sustainable development goals like access to clean water or reduction of waste. Another core recommendation relates to requiring investors to disclose how they take sustainability into account in their investment decisions. Pension funds in the EU are already required to report on if they include ecological and social aspects in their risk management. However, they are not required to disclose how they apply the ESG criteria (environment, social and governance) concretely to their investment decisions. Further, the report argues in favour of EU labels for green investment funds and green bonds. In particular, the latter would make it easier for ecologically minded companies to raise funding. The experts also see a much more active role for the authorities at EU level that are tasked with financial market oversight. The European Securities and Markets Authority (ESMA) and the European Banking Authority, for instance, should more closely supervise the long-term risks for the financial system that are associated with climate change. The “tragedy of the horizon” A central idea behind the cross-sector measures is the “tragedy of the horizon”, or rather of the mismatched horizon, in the financial sector: investments in sustainability – education, infrastructure, energy – do not yield good results until years or even decades later and thus are not attractive to many fast and speculative financial market players. “Short-termism”, as people sometimes call this type of thinking, is a clear obstacle to more sustainable finance. And the experts do not see a fast solution. They suggest that in a first step the regulations be evaluated with a view to determining which of them promote short-term profit generation. In other areas, the experts express considerably more concrete views – with respect to ratings agencies, for instance: quite simply, they should incorporate ESG criteria into their ratings and disclose their methods of doing so publicly. This also includes educating their staff on topics related to sustainability. Marlehn Thieme, Chairwoman of the German Council for Sustainable Development, describes the report of the HLEG as ambitious. “It is very good because it shows clearly how the future of the financial markets can be oriented. And it shows through its orientation towards practical application that sustainable financial markets are possible,” Thieme comments. “However, it fails to set out a synopsis of various policy areas. With regard to European budget, tax and economic policy, we need a coherent regulatory structure that enables the use of market economy tools.” The Council Chairwoman also points to the key role of the companies themselves. “If we are to make the finance sector sustainable, we need both banks and insurers as well as the companies.” Overall, the report only concerns itself with making recommendations. On 20 February, the EU Finance Ministers will be reviewing the report and in March, the European Commission will present its action plan on sustainable finance, which is to incorporate the experts’ recommendations. A major conference of experts on the topic is scheduled to be held in Brussels on 22 March. The High-Level Expert Group recommends that a working group at EU level be established this year so that it can develop by 2020 an EU classification system for sustainable investments. “Implementation of our report is now in the hands of the EU and the various financial market players,” comments Schmidt. What comes next Council Chairwoman Marlehn Thieme: “Sustainable finance is not mentioned anywhere in the federal government’s coalition agreement. However, as the HLEG report is only a recommendation, political support is needed. The new government must work to promote implementation at EU level of well-designed carbon regulation processes on behalf of sustainable finance and the real economy.” In Germany, the ten recommendations of the Hub for Sustainable Finance have also taken up some of the recommendations of the HLEG report. This open network of financial market players and other stakeholders was initiated in the summer of 2017 by the German Council for Sustainable Development (RNE) and Deutsche Börse. Following a first summit in October 2017 in Frankfurt, the various actors are now called on to make contributions that help promote a sustainable financial system in Germany and establish the topic in mainstream capital market activities. A dedicated project website is currently in the process of being created; until it is completed, the latest information is available at www.h4sf.de. On 22 February, a conference on sustainable finance will be held in Berlin, organised by the Hub together with the German Institute for Economic Research (DIW). The main topic of the conference will be the HLEG report. The conference is, however, already fully booked up." ["post_title"]=> string(68) "EU expert group outlines ways forward for reorienting finance sector" ["post_excerpt"]=> string(314) "At the request of the European Commission, a group of experts has been working for over a year on a catalogue of recommendations on how regulations for financial markets can be changed – to make them more secure and see to it that they support rather than hinder sustainable development. These are their results." 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