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Recently, during the ongoing coronavirus crisis, the EU presented an important component for decarbonising the economy over the coming decades: heads of state and government have after years of deliberation adopted a definition framework that applies to the entire EU and lays out what is required for businesses to be considered operating sustainably – the so-called taxonomy. All that is needed is approval from the European Parliament, though this is regarded as a mere formality, and the new set of regulations will come into force.

Several experts have declared the taxonomy to be the right tool coming at the right time. Because following the agreement of emergency support for the economy in the wake of the coronavirus pandemic, the EU is planning a stimulus package comprising possibly trillions of euros – recovery should, as Executive Vice-President of the European Commission Frans Timmermans advocates, be a green one. In mid-April, an alliance comprising 13 EU environmental ministers, among them the German officeholder Svenja Schulze (SPD), as well as company heads and representatives of unions and non-governmental organisations called for a “green upturn”.

Concrete suggestions as to how that could be accomplished consist usually of facilitating environmentally friendly technology and measures like e-mobility, public transport, building renovation or the hydrogen economy. “These are all very good points, but also very expected ones,” says Matthias Kopp, Head of Sustainable Financial Systems as WWF. “What doesn’t come up in the discussion at all is how such technology is translated into how the financial sector works,” Kopp adds. Regarding this particular question, the EU member states and the European Commission have executed trailblazing work by directly employing their tools for a more sustainable finance industry in their credit programmes administered by, for instance, the Kreditanstalt für Wiederaufbau (KfW) or the European Investment Bank (EIB).

Sustainable Finance Committee: apply the taxonomy

The taxonomy lies at the heart of this. It defines in detail when a company’s economic activities (not necessarily the company as a whole) can be considered to be sustainable and it does so for numerous different sectors, from grain cultivation to steel production through to the automotive sector. The underlying principle applied is the idea that an activity can be considered ecologically sustainable if it makes a positive contribution to one of the six EU environmental targets – such as climate protection, transition to a circular economy or restoration of biodiversity. At the same time, the activity may not have a negative impact on any of the goals. In addition, minimum social standards must be fulfilled, and the impact must have been evaluated using scientifically sound methods. The Sustainable Finance Committee of the German federal government has now advocated the application of the taxonomy. “Economic stimulus packages should therefore be based on the approaches of the European Commission including among others the Net-Zero 2050 goal, the multi-year EU financial framework, including the European Green Deal and the Sustainable Finance Action Plan, as well as the Taxonomy Regulation,” the Committee writes.

“The taxonomy not only looks at what is green and sustainable now, but also takes transition into account and thus the path to get there,” explains Karsten Löffler of the Frankfurt School of Finance & Management, who is also Chairperson of the Sustainable Finance Committee. As part of the group of technical experts, he helped prepare the details of the taxonomy for the EU. “Linking investment requirements to the taxonomy is definitely conceivable,” says Löffler. For instance, the EU could link its long-term policy goals, like carbon neutrality by 2050, with the path to recovery from the crisis. That said, the taxonomy does not yet take into account all aspects of sustainability – like for example social issues, where currently only minimum standards apply. “If you view sustainability holistically, it’s about much more than just the environment. Nevertheless, the taxonomy is a good place to start,” Löffler believes.

Kopp even goes one step further: “The taxonomy is designed to find out what exactly makes ecological transformation possible. It is thus virtually obligatory that the framework be applied. Europe is already integrating it into a variety of different legislative projects,” says Kopp. This includes, for example, the Green Bond Standard and the new disclosure requirements for companies by which financial market players are to be able to assess whether or not their investments accord with the Paris climate targets. “It would almost be foolish not to apply the taxonomy now, though it is assuredly not yet developed through to its final form,” adds Kopp.

Klein: it’s about risk management

Christian Klein is a professor of sustainable finance at the University of Kassel and has examined how the taxonomy could now be applied in concrete terms. “Let’s just imagine for a moment that we put a CO2 clause in the requirements for companies seeking credits. A concrete reduction target. If a company achieves the target, repayment is deferred or part of the repayment is even waived,” puts forward Klein. Companies must already lower their emissions regardless in view of the EU’s reduction targets. Here it’s now about the state’s risk management. Companies that do not adjust are less competitive and there’s thus a higher probability of them defaulting on the credit.

“If the state is going to be handing out such gigantic sums, it should make sure the companies are future-proof and not set to go bankrupt,” Klein proposes. The exact nature of the clauses and carbon benchmarks could be taxonomy-oriented. There is currently still time to do so as the recovery programme as a result of the coronavirus crisis is still under discussion. “Just imagine how many highly qualified individuals suddenly have space in their heads right now for new thoughts. When will we ever again have an opportunity like this to think strategically about the coming decades?” he asks.

WWF’s Kopp throws in the idea of giving every company a good faith bonus, but to then link additional advantages to certain conditions. “The point that is absolutely central is that companies need concrete plans and paths for the climate adjustments coupled with transparency of progress.” The state has a right to require a path to net zero emissions when it hands out taxpayers’ money. Many companies are prepared for this path, he says, as there are after all corresponding reporting standards. The European Commission had planned to rework its Sustainable Finance Strategy in any case and the consultations are currently under way.

Kopp and Löffler as well take a similar view to Klein: it’s about risk management. “It’s very important for policymakers that climate aspects be incorporated into credit and investment decisions,” says Löffler. “In the private sector, you can see the credit institutes are taking into account more and more the risks associated with business models that are not adapted for a lower-carbon future.” The state would do well to follow this example.

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Berlin, 31.10.2019 – The German Sustainability Code (DNK) has been awarded the ISAR Honours 2019 by the United Nations Conference on Trade and Development (UNCTAD). The award ceremony took place on 30th October 2019 in Geneva at the annual session of ISAR (Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting).

This international award recognises initiatives that deliver an outstanding contribution to transparency regarding sustainability in businesses, particularly through enhancing the comparability and quality of companies’ reporting on sustainability issues. A Review Committee of distinguished international experts selects the award winners based on their effective encouragement and assistance for companies’ reporting on sustainability performance. The experts were impressed by the Sustainability Code’s user friendliness for both the reporting companies and the reports’ target audience. Readers can access and compare the reports by means of the Code’s free online database and external users can also conduct meta-analyses. A technical interface allows immediate usage of the published information in other evaluation systems. As an open source solution for ecological, social and governance (ESG) data, the Code therefore also contributes to Sustainable Finance.

For Yvonne Zwick, Deputy Secretary General and Head of the Sustainability Code Office, the Code’s users are a pillar of its success. “We are very grateful to accept the ISAR Honours 2019 Award on behalf of all the companies that comply with the Sustainability Code and thus promote standardised and focused sustainability reporting”, she commented. “We would like to thank the Review Committee for its positive evaluation of the Code. This award supports our ambition to establish the Code internationally – as a standard that is open to all and easy to use”, she added.

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“The very foundations of our lives are under pressure as a result of the established production and consumption patterns of our time.” This statement does not come from an environmental association but has its source in the first position paper from the Federal Government’s Sustainable Finance Advisory Council, which took up its work in June. Sights are set high: the Federal Government wants Germany to assume a leading role for sustainable finance markets.

The Council is itself composed of representatives of banks, asset managers, Deutsche Börse AG, rating agencies, the industry, insurers, the scientific community, NGOs and public authorities. The German Council for Sustainable Development (RNE) is also represented as an observer – and has published a paper detailing its position with respect to the Federal Government’s sustainable finance strategy. At the third German Sustainable Finance Summit, the majority of the Council’s 38 experts made themselves available for a discussion panel with interested specialists for the first time. Below you will find a summary of the key discussion points.

“What do we mean by ‘sustainability risks’?”

This was the question Jörg Kukies, State Secretary at the Federal Ministry of Finance, asked rhetorically at the summit in Frankfurt. The idea behind the question being that unsustainable action on the part of businesses as a commercial risk for investors and their clients, i.e. you and I, should be made transparent and measurable. This seems to be beyond the sector’s current capabilities. “Many groan and ask if that means there will be still more regulations. Many are also scared away and worried about the work itself, as they don’t have any experience with the topics of ethics, sustainability or human rights,” says Silke Stremlau, assessing the mood in the finance sector. She represents the ethical-social business association Hannoversche Kassen, which offers company pension schemes. Kukies assuaged these worries, saying that no concrete new regulations were on the table, rather the aim were to expand existing guidelines in order to take up sustainability criteria in the risk categories used to date.

The German Federal Financial Authority (BaFin) recently published an official notice on this subject, which is open for consultation until 3 November, containing examples of such risks: such as if a pension fund invested in a chemicals company that did not operate sustainably. An abrupt change in market sentiment would lead to devaluations. This is a classic market risk that today already has to be accounted for. Or, for instance, following a flooding disaster, customers pull their assets from a local credit institution in order to finance repairs of the damage – a classic liquidity risk. Overall, the BaFin notice had brought “tears of joy” to the eyes of many in the sustainable finance sector, as it required of numerous classic players that they take up a concrete position with respect to sustainability, Stremlau commented. Other commentators held back as the notice did not apply to system-critical banks, as these were subject to the supervision of the European Central Bank.

Data, data, data

In addition to risks, Frank Pierschel, Head of the BaFin Banking Supervisory Division, pointed out that major opportunities also await in the form of investment in the economic transformation. Both aspects – risks and opportunities – require extensive data. Despite the EU requirement that large corporations prepare sustainability reports, the data is insufficient. The Council’s position paper assesses that “currently, there is no common understanding regarding the key ESG data that are to be provided by the real economy and financial sector and be evaluated by investors”. There were thus many questions posed at the summit in Frankfurt relating to this issue. One working group prepared a whole list of these questions: is the quality of data on sustainability performance adequate for guiding capital flows? Is the data even being prepared and applied? Do banks, insurers or other players have the software for processing such data? Simply including the full range of climate data in the accounting is quite a mountain of work, one participant remarked.

Another question was what incentive the business sector had to provide detailed figures on sustainability, which could possibly grant competitors significant glimpses into their operations. Many firms have access to affordable capital right now anyway as a result of the zero-interest phase: is the effort required to become attractive to sustainability-oriented investors even worth it? The journey seems long yet, as many companies still do not view social- and climate-related topics as part of their core corporate reporting, one participant noted. A further open question was how companies that are still part of the old “brown” economy could be rewarded for taking up the process of transformation. Here, too, classification is needed. For many of these issues, possible solutions are already proposed. Global sustainability standards could be derived from the recommendations of the Task Force on Climate-related Financial Disclosures.

Also regarding the question of so-called double materiality, there are differing views: according to one, companies must disclose how the climate crisis affects their operations. That alone is complicated, some participants noted. From the other perspective, companies should additionally provide reliable figures on how they themselves contribute to climate change or impact society positively or negatively. “Is that taking things too far?” one working group asked – and suggested a pragmatic approach of simply applying existing models, such as the United Nations’ Principles for Responsible Investment, and seeing what progress can be made. The RNE is itself currently working with the fintech start-up Arabesque S-Ray on an open data solution for ESG data (i.e. data on ecological, social and governance aspects of companies’ operations) based on the data that is available through the Sustainability Code (DNK).

Obligatory or voluntary?

Imagine if every financial product would in future carry an indicator as to what extent the companies or projects it finances are compatible with the international climate goals. A label such as that for refrigerators would be conceivable, a participant suggested. The question of whether or not financial actors should be obligated to provide such information – or do it on a voluntary basis – was a contentious one. The taxonomy, a uniform definition of what constitutes a sustainable financial product, currently being developed by the EU is applied on a voluntary basis. The Council has not yet made a decision on this matter. “Statutory regulations neither guarantee achievement of an intended impact nor are voluntary-basis approaches by definition without impact,” is the stance taken in the position paper.

Within the expert body, the need for a “systemic approach” was undisputed, commented Kristina Jeromin from Deutsche Börse AG, who sits on the new council. Sustainability should not just be limited to a small niche of the market. ‘Systemic’ should not be equated with an obligation to provide information on financial products’ sustainability. Rather, the summit concluded, it was about achieving a transformation of the financial system by leveraging the market’s own dynamics. Not more, but different, regulation was a sentiment frequently uttered. This enables a new narrative of how companies and financial market players can become future-proof by following the societal drive for more climate and environmental protection.

Leadership responsibility and the role of the Federal Government

Such a vision gives rise to a responsibility to be borne by corporate executives and policymakers. “The public sector has a key example to set in the transformation of the financial system and the real economy towards sustainability,” points out the Council’s position paper. In its own recommendations, the RNE goes a step further: “Sustainability must become the criterion for setting the national budget and therefore also the basis of assessment for both the budget committee and the audit offices.” Georg Schürmann, Managing Director of Triodos Bank Deutschland, called on policymakers to create clearer framework conditions: “We can only finance those things that actually develop in the real economy. We can’t finance wind farms if they aren’t being built, like in 2019,” he commented, emphasising how important it was for the real economy to be represented in the new council of experts.

The finance industry itself could also send clearer signals to the political sphere, added Karsten Löffler of the Frankfurt School of Finance & Management and Chairman of the Sustainable Finance Advisory Council, pointing to the Dutch finance industry, which had publicly taken up a position in clear support of the government’s climate protection policy. “It would send a strong signal if we were able to do that in Germany, too,” commented Löffler.

Matthias Kopp, responsible for sustainable finance at the WWF and a member of the Council, called for Germany to provide an impulse that would energise debate at European level – after all, Berlin would soon be holding the presidency of the Council of the European Union. “It would be my wish to see Germany progress from a reactive role to a constitutive one,” Löffler added. Silke Stremlau had a similar view: “My idea is that we show the Federal Government our support and say: we in the finance sector want a higher carbon tax; we want the SDGs [the global sustainability targets of the UN] to be a yardstick for future financing.” In the task of reaching this consensus, the Council would be beneficial.

The European and global levels of sustainable financial markets were uncontroversial at the summit. “It is a multilateral process where Europe has a true leadership role,” commented Pierre Ducret, President of the French organisation Finance for Tomorrow. Within the EU, however, it was said that certain countries would need to take the agenda forward. The Netherlands were predestined for this role, but the most important thing here was an old relationship that has long been a driver of European unity: “We need strong bilateral cooperation between Germany and France,” said Ducret.

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Chinese and German sustainability stakeholders came together this summer to engage in dialogue – the Sino-German Sustainability Summit, which was held in Beijing at the end of June and was organised by TÜV Rheinland, and a business round table on the following day served as a forum for discussing urgent sustainability issues and possible joint contributions to the 2030 Agenda. The German corporate network Econsense and the German Council for Sustainable Development (RNE) were event partners.

For some years now, TÜV Rheinland has been organising regular summits in China on a variety of topics such as standardisation and quality management. This year’s focus was sustainability. TÜV Rheinland therefore brought the corporate network Econsense, the Sino-German Center for Sustainable Development (organised within the GIZ office in Beijing) and the agency Schlange & Co. on board as supporting organisers, alongside the RNE.

The meeting of approximately 260 Chinese and German sustainability stakeholders was also attended by two members of the RNE Office, namely Yvonne Zwick, RNE’s Deputy Secretary-General and Head of the Sustainability Code Office, and Project Manager Florian Harrlandt.

Fruitful dialogue

On the first day of the summit, Yvonne Zwick moderated a panel discussion on the topic of sustainable finance and, in the afternoon, a workshop on transparency and sustainable development. Florian Harrlandt gave a speech introducing the Sustainability Code. “The personal discussions we had were also interesting as they gave us insight into the challenges faced locally in China,” said Harrlandt. For example, there was very little recognition of the correlation between individual, healthy lifestyles and sustainability at the corporate level.

On the second day, a smaller circle of attendees convened for a round-table discussion, including representatives of businesses and civil society such as TÜV Rheinland, EY Germany, the Global Compact Network China, the Emerging Market Multinationals Network for Sustainability and Econsense.

Proportion of SMEs high in both countries

A surprising lesson learned over the two days was the fact that Germany and China face very similar challenges: “We were surprised by how many parallels could be drawn between the German and Chinese economic structures,” noted Harrlandt. Yvonne Zwick thus firmly believes these talks will serve to trigger ongoing dialogue.

In both countries, most of the major enterprises have already developed approaches with which to contribute to sustainable change. Equally, however, both countries have a high proportion of small and medium-sized enterprises (SMEs) within their economies and these still often see the Sustainable Development Goals (SDGs) as an abstract political concept with which they have few touchpoints. In the course of the Sino-German dialogue, both Ya Yuan, who works as a consultant to the China Business Council for Sustainable Development (CBCSD), and David Wang, General Manager of RKS Ratings, stated that a sound basis for sustainable development achievements by companies in China was still lacking.

Possible follow-up event in Germany

“It was a similar problem which prompted the RNE to facilitate a structured approach to sustainability reporting years ago in the form of the Sustainability Code,” explained Florian Harrlandt, who went on to say that it was therefore hardly surprising that the Chinese dialogue partners were interested in this instrument.

An array of other services and instruments which the RNE has already put to the test, such as the Sustainable Shopping Basket, the dialogue of mayors and the Regional Hubs for Sustainability Strategies (RENN), likewise caught the Chinese dialogue partners’ interest; they believe these could be applied in a modified form in China, too. There is also interest on both sides in consolidating this Sino-German dialogue and in holding a follow-up Sino-German Sustainability Summit in Germany.

" ["post_title"]=> string(51) "Inauguration of Sino-German sustainability dialogue" ["post_excerpt"]=> string(287) "The Sino-German Sustainability Summit held in Beijing highlighted parallels between the two countries regarding discussions of sustainable business practice. Various RNE initiatives have attracted the interest of the Chinese and could contribute to sustainable development in China, too." ["post_status"]=> string(7) "publish" ["comment_status"]=> string(6) "closed" ["ping_status"]=> string(6) "closed" ["post_password"]=> string(0) "" ["post_name"]=> string(51) "inauguration-of-sino-german-sustainability-dialogue" ["to_ping"]=> string(0) "" ["pinged"]=> string(0) "" ["post_modified"]=> string(19) "2019-08-15 11:08:57" ["post_modified_gmt"]=> string(19) "2019-08-15 09:08:57" ["post_content_filtered"]=> string(0) "" ["post_parent"]=> int(0) ["guid"]=> string(42) "" ["menu_order"]=> int(0) ["post_type"]=> string(4) "post" ["post_mime_type"]=> string(0) "" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" } [5]=> object(WP_Post)#6135 (24) { ["ID"]=> int(13317) ["post_author"]=> string(1) "5" ["post_date"]=> string(19) "2019-03-28 10:07:04" ["post_date_gmt"]=> string(19) "2019-03-28 09:07:04" ["post_content"]=> string(4638) "The German Federal Government intends to make Germany a leading financial hub for Sustainable Finance and will develop a strategy to this end. This was agreed in Berlin at the end of February by the State Secretaries’ Committee for Sustainable Development under the auspices of the Head of the Federal Chancellery, Helge Braun. The committee also resolved to establish a Sustainable Finance Advisory Council in order to expand dialogue between the Federal Government and the finance sector, the real economy, civil society and the scientific community. The committee members further ordered that the efficiency of green and sustainable German Federal Bonds be reviewed. With its Sustainable Finance resolution (PDF), the Federal Government is emphasising the importance of financial market stakeholders to take sustainability aspects into account in their decisions. The committee did not adopt a schedule for the development of a Sustainable Finance strategy. The Federal Ministry of Finance (BMF) and the Federal Ministry for the Environment (BMU) are currently working on a detailed concept to implement the resolution to create an advisory council. The German Council for Sustainable Development (RNE) has been advocating the incorporation of sustainability into the world of finance for years. As early as in 2006, it spoke of the potential leverage effect that the financial market could have on sustainable development. The Council highlighted the need for ambitious goals to be set with a recommendation statement issued before the committee meeting. In addition, the Council founded the Hub for Sustainable Finance (H4SF) as an open stakeholder platform and will continue organising the established H4SF round table formats until further notice. “The Federal Government’s resolution on Sustainable Finance deserves to be acknowledged as a positive commitment from the government,” says RNE Chairwoman Marlehn Thieme, commenting on the plans. Awareness of this topic within the government has evidently increased considerably, she believes, with the Ministry of Finance having played a crucial part in this development.

RNE Chairwoman calls for “clear signals to the market”

“I firmly believe that Sustainable Finance is already having an impact on industry and the economy, but it needs to become more standard on the market,” says Thieme. She argues that, in the light of Sustainable Development, the future viability of business models needs to be assessed differently than with the conventional evaluation frameworks. The RNE Chairwoman called for clear signals to be sent to the market in asset investment as well as in borrowing: “The review of sustainable German Federal Bonds and the establishment of the new advisory council should lead to a decision this year that gives the market the stimulus it needs.” The State Secretaries’ Committee for Sustainable Development is the central steering body of Germany’s National Sustainable Development Strategy. All federal ministries are represented in the committee by their state secretaries. In addition to the ministries’ state secretaries, the committee meeting was attended by the following external experts: RNE Chairwoman Marlehn Thieme, Vice-President of the Deutsche Bundesbank Sabine Mauderer, KfW CEO Günther Bräunig, Michael Schmidt, member of the management board at Deka Investment GmbH and member of the European Commission’s High-Level Expert Group on Sustainable Finance, and Kai Whittaker, member of the German Bundestag and member of the Parliamentary Advisory Council on Sustainable Development." ["post_title"]=> string(55) "Germany to assume a leading role in Sustainable Finance" ["post_excerpt"]=> string(298) "This is the decision reached by the State Secretaries’ Committee for Sustainable Development at the end of February. It also announced the creation of a Sustainable Finance Advisory Council. Moreover, green and sustainable German Federal Bonds are to be reviewed with respect to their efficiency." ["post_status"]=> string(7) "publish" ["comment_status"]=> string(6) "closed" ["ping_status"]=> string(6) "closed" ["post_password"]=> string(0) "" ["post_name"]=> string(55) "germany-to-assume-a-leading-role-in-sustainable-finance" ["to_ping"]=> string(0) "" ["pinged"]=> string(0) "" ["post_modified"]=> string(19) "2019-03-28 10:07:04" ["post_modified_gmt"]=> string(19) "2019-03-28 09:07:04" ["post_content_filtered"]=> string(0) "" ["post_parent"]=> int(0) ["guid"]=> string(42) "" ["menu_order"]=> int(0) ["post_type"]=> string(4) "post" ["post_mime_type"]=> string(0) "" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" } [6]=> object(WP_Post)#6134 (24) { ["ID"]=> int(11396) ["post_author"]=> string(1) "5" ["post_date"]=> string(19) "2018-10-16 13:23:38" ["post_date_gmt"]=> string(19) "2018-10-16 11:23:38" ["post_content"]=> string(10771) "Conferences on the topic of sustainable finance always have one thing in common – they begin with the observation that this is a niche industry and that globally only a tiny fraction of finance flows are based on more than just short-term returns. So, too, began the second German Sustainable Finance Summit, kicked off in Frankfurt with a critical analysis by Joachim Faber, Chairman of the Supervisory Board of Deutsche Börse AG. “We continue to do a great deal of talking, but little is actually achieved. The discussions are not very impact-oriented,” said Faber as a criticism both of the policymakers and his own industry, which he argues is not showing much movement. According to Faber, many papers on the topic, including those from business circles, are planned simply as soapbox speeches and lack actual goals for achieving greater sustainability. However, the tide appears to slowly be turning. For the second time, the Hub for Sustainable Finance, which was founded by Deutsche Börse AG and the German Council for Sustainable Development (RNE), hosted a German Sustainable Finance Summit – with twice as many delegates from the field of politics, the finance sector, science and civil society as last year. There appears to be a reason for this high degree of interest: Alexander Bassen, Professor of Capital Markets and Management at the University of Hamburg and Council member, spoke of a “regulatory sword of Damocles”.

EU action plan results in action

Bassen spoke about the European Commission’s March 2018 action plan on financing sustainable growth, the aim of which is to see to it that the EU implements the Paris Agreement and the United Nations’ 2030 Agenda. This was followed in May by the introduction of a set of measures for implementation of the action plan. Two aspects of the Brussels proposals were discussed in depth at the conference in Frankfurt: Taxonomy: One of these is that all EU member states are to agree on a common definition of sustainable economic activity in the interests of the environment – the technical term for this is taxonomy. This can subsequently serve as the basis for a common EU-wide label for sustainable investments, possibly along the lines of the organic food certification mark. According to the Commission’s current proposal, this classification system would apply to all financial market players wishing to offer green, sustainable, environmental or similarly labelled financial products. A group of experts has been working on this since June. The taxonomy will initially only cover environmental criteria for sustainability, not social and governance criteria. A hearing of experts will be held in this regard in Brussels on 18 October. At the conference, Martin Koch, Policy Officer within the European Commission’s DG FISMA, explained that the Commission’s aim was to prevent the EU market for green, environmental and sustainable finance products from becoming fragmented and that a clear framework was needed, especially for cross-border investments. The planned taxonomy was discussed in depth by the Summit’s participants. Criticism was voiced of the fact that the taxonomy would only apply to explicitly green financial products. As such, the classification would not affect anyone not wishing to label a fund, an insurance policy or some other financial product as sustainable, green, environmental or any such term. In addition, it only applies to financial products, not companies. An enterprise could therefore invest in coal but still launch a financial product to finance wind farms which is labelled as being green. Molly Scott Cato, a member of the European Parliament for the Green Party of England and Wales, said that the taxonomy was a breakthrough that should be feted. “But there is no black-list, and that’s definitely not green. Without this, the taxonomy isn’t terribly useful,” she said in criticism. Koch defended the taxonomy, stating that it had six clear fundamental environmental principles. Green investments would have to be of benefit to at least one of these, such as climate protection, and may not be detrimental to any of them, for example protection of the oceans. Levin Holle, Director General for Financial Markets Policy within Germany’s Federal Ministry of Finance (BMF), said the taxonomy was very important, but warned against being too hasty: “If we get the taxonomy even slightly wrong, we run a great risk of sending a lot in the wrong direction,” he said. Disclosure requirements: According to Holle, there are two other aspects of the EU reforms which are more pressing for the Federal Ministry of Finance in view of the EU elections in just six months’ time, namely the so-called low-carbon benchmarks and the requirements regarding the disclosure of sustainability aspects. The former are uniform EU-wide benchmarks for the environmental damage caused by the economic activities that investors invest in – investors could then use these benchmarks to make their investments more environmentally friendly. In addition, there are uniform benchmarks for rating the positive impact of investments in climate protection – these are called positive-carbon benchmarks. The disclosure requirements were the subject of intense debate at the conference. Unlike the taxonomy, these would apply not only to green financial products, but to the financial market as a whole. The European Commission presented a proposal for these in May. The regulation lays the foundations for environmental, social and governance aspects – the ESG criteria for short – being placed at the heart of the financial system. Its purpose is also to make Europe’s economy greener and more resilient and to establish a circular economy, according to the European Commission’s proposal. The plan is for a number of existing directives and regulations to be amended. All financial market players who manage money for their clients in anything from risk capital funds to pension insurance policies will then be obliged to take ESG criteria into account in all of their investment decisions. They will be required to regularly report to their clients on how they do this. They will also be required to always disclose to their clients the effect that sustainability aspects will have on the value of an investment. “Taking sustainability criteria into consideration is part and parcel of analysing the opportunities and risks of financial undertakings,” said BMF representative Holle. This is founded on the lesson learned that businesses or portfolios that consider ESG criteria achieve the same return but with fewer risks. “What I think is lacking is the finance sector seeing this more as a business opportunity,” said Chairman of the Deutsche Börse AG Supervisory Board Faber. Together with climate protection and the UN’s 2030 Agenda, this so-called risk-adjusted return on sustainable investments is the second reason why the European Commission is expediting the topic – it believes that a financial system which takes ESG criteria into account is more stable because it involves fewer risks. One of the criticisms levelled at the disclosure requirements during the conference was that having to incorporate ESG criteria into risk management would not make a financial activity automatically more sustainable. Many of the attendees were also still entirely in the dark as to how the new requirements would be incorporated at a practical level into the day-to-day activities of, for example, a portfolio manager.

Expertise, primacy of the policymakers and education

The EU reforms weren’t the only topic discussed at the Summit. The speakers’ and attendees’ key messages included the following: Documentation of the Summit’s findings will be published on the website of the Hub for Sustainable Finance in the next few weeks. Michael Schmidt, Head of Asset Servicing and Alternative Investments at Deka Investment, summed up what was certainly the key finding of the Summit as follows: “The circle has got bigger. The stone thrown into the water by the EU is throwing ripples and is now impacting more than just those who are enthusiastic about sustainability,” he said." ["post_title"]=> string(56) "Brussels adds momentum to sustainable finance in Germany" ["post_excerpt"]=> string(202) "The second German Sustainable Finance Summit showed that sustainable finance has shaken off its niche existence and is now a topic here in Germany too. Reforms at the EU level are the key driving force." ["post_status"]=> string(7) "publish" ["comment_status"]=> string(6) "closed" ["ping_status"]=> string(6) "closed" ["post_password"]=> string(0) "" ["post_name"]=> string(56) "brussels-adds-momentum-to-sustainable-finance-in-germany" ["to_ping"]=> string(0) "" ["pinged"]=> string(0) "" ["post_modified"]=> string(19) "2018-10-16 13:23:38" ["post_modified_gmt"]=> string(19) "2018-10-16 11:23:38" ["post_content_filtered"]=> string(0) "" ["post_parent"]=> int(0) ["guid"]=> string(42) "" ["menu_order"]=> int(0) ["post_type"]=> string(4) "post" ["post_mime_type"]=> string(0) "" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" } [7]=> object(WP_Post)#6136 (24) { ["ID"]=> int(8296) ["post_author"]=> string(2) "10" ["post_date"]=> string(19) "2018-02-16 16:28:49" ["post_date_gmt"]=> string(19) "2018-02-16 15:28:49" ["post_content"]=> string(7863) "If things simply continue the way they have done, the EU will not achieve the Paris climate targets. 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 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) "" ["menu_order"]=> int(0) ["post_type"]=> string(4) "post" ["post_mime_type"]=> string(0) "" ["comment_count"]=> string(1) "0" ["filter"]=> string(3) "raw" } [8]=> object(WP_Post)#6291 (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 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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