Christoph Bals

Germanwatch

These recommendations give the government huge leverage in gearing the German economy towards carbon-neutrality and preparing it for the future. If we want low-risk, sustainable investment decisions, we need transparency, comparability and appropriate scrutiny. However, the regulatory frameworks currently in place are forcing the financial system to operate in a short-sighted manner. This results in what has been called the tragedy of short-term horizons, whereby the medium- and long-term effects of the climate crisis and misinvestments in fossil fuels are overlooked. Scenario analyses and stress tests for companies allow the financial market to identify risks at an early stage and support its own long-term stability. In addition to forward-looking company reporting, we also need to adjust due diligence requirements for companies and auditors so as to ensure that they go beyond reporting, and actually tackle implementation. Such measures must be designed in close alignment with the upcoming EU legal framework on sustainability and reporting.

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