In addition to the primary task of the Sustainable Finance Committee to advise the German Federal Government on the development and implementation of its Sustainable Finance Strategy, it also advises on national, European and international discussions with regard to sustainable finance. Here, you can find the Committee’s latest statements.
The Sustainable Finance Committee (SFB) welcomes the joint commitment on June 30 from 16 banks to align their business activities in line with the Paris climate goals (“Climate commitment of the German financial sector“).
As outlined in the Committee’s interim report, Germany can leverage its technological and industrial prowess to help shape and promote the transition to a CO2-neutral economy both within Europe and globally. A coordinated approach coalescing around future-oriented actions corresponding to the objectives of the Paris climate agreement are therefore essential.
The climate commitment of the German financial sector is an important milestone on this path. It marks the transition from the mere declaration of reduction targets to the necessary specification of concreate measures and processes. This is a solid foundation from which to launch the broad structural economic and societal changes required. However voluntary commitments cannot replace appropriate legal frameworks and other measures proposed by the Committee – they can only complement and lay the groundwork for them.
Notwithstanding the urgency of climate-related action, the Sustainable Finance Committee would like to emphasise the need to balance all three dimensions of sustainability – ecological, social and economic. This balance is essential for the viability and effectiveness of Sustainable Finance.
We call on banks, funds, insurance companies and other financial services providers active in Germany to join the primary signatories during the German EU Council Presidency.
On April 17 this year, the Sustainable Finance Committee (SFB) published a statement on the sustainable and future-oriented design of the economic stimulus programmes established in the context of COVID-19.
The SFB would like to thank the Science Platform for Sustainable Finance for its latest publication on the same topic, and to take the opportunity to underline and further specify the recommendations.
As explained in the paper published by the Science Platform, the resulting medium to long-term macroeconomic effects and their compatibility with set political goals must be taken into account when stimulating rapid growth and employment effects. With the signing of the Paris Climate Agreement and the alignment of the national sustainable strategy with the UN Sustainable Development Goals, the Federal Government has committed to the implementation of a national and international economic system that takes into account the limits of the planet and is compliant with recognized social standards. These must now be reflected in the soon to be adopted economic programmes. The proposal of the European Commission of May 27th for a new recovery instrument – Next Generation EU – linked to the European Green Deal could provide practical guidance for designing these programmes.
The Sustainable Finance Committee supports the proposal of the Science Platform to link the economic stimulus package with sustainable finance through three integrated measures:
- First: Evaluation of measures in the economic stimulus package with respect to how they contribute to the realization of Sustainable Development Goals (SDGs). The Committee understands this measure to be an important step to increasing the transparency on the sustainability of public expenditures. From the SFB’s point of view, however, this does not result in any directly relevant political steering.
- Second: Evaluate investment projects against climate-relevant screening criteria. It is necessary to complement the evaluation measures with a “climate flash-test”, which tests all climate-relevant investment projects against minimum standards. The classification of the Technical Expert Group on Sustainable Finance (TEG) should be used to identify climate-relevant activities. Corresponding minimum standards have already been established, for example, in the KfW funding programme “Klimaschutzoffensive für den Mittelstand“.
- Third: Expansion of non-financial company reporting. Non-financial reporting at company level should be expanded for beneficiaries of stimulus programmes, depending on the size of the company. In the long term, this creates transparency about the role of decarbonization at the company level, without creating further hurdles in the short term.
Taken together, these measures would increase transparency in the design and gradual implementation of an economic stimulus package, and would help anchor the sustainability goals at company level.
The COVID-19 crisis poses unprecedented challenges for politics and society. The federal government cannot rely on prior experiences or well-established best practices to mitigate the social and economic effects of the pandemic. The magnitude of the required economic emergency measures will be unprecedented. In the coming months, additional economic stimulus measures are expected. Meanwhile the debates have already begun.
Given the massive social but also economic challenges, the focus is now on coping with the crisis in the short and medium term. However, the resources mobilized in this context will have very long-term effects and therefore have to contribute equally to solving long-term challenges – namely the transformation of the economy towards climate neutrality and improving sustainability. Dealing with COVID-19 has raised public awareness for many – in particular social – sustainability issues. Like other exponentially growing crises including climate change, it is another phenomenon illustrating the importance of resilient economic structures.
The risks of unsustainable path-dependencies for costs, assets and stability became increasingly clear before the COVID-19 crisis, but are even more apparent today. Not least from a risk perspective, it would be irresponsible if stimulus programs are not aligned, or worse collide, with agreed climate targets and the Sustainable Development Goals (SDGs). We must avoid a situation where the only alternatives left are either failing to meet the stated sustainability goals or a massive amount of stranded assets.
Consequently, political decision-making processes must consistently take into account which economic structures and developments are considered sustainable in the long term. In the context of financial markets, this pays off for instance in stable and resilient markets. Macroeconomically, it means establishing a national and international economic system that takes into account the limits of the planet and aligns them with political goals and commitments.
The funds mobilized for upcoming economic stimulus programs will most likely remain unmatched in the coming years. This creates a historical opportunity to transform the economy into a low-carbon and sustainable one. The programs must be transparent and aligned with goals such as the SDGs, the Paris Agreement and the European Union’s ambition to be carbon neutral in 2050.
By acting in solidarity, the Federal Government now has the opportunity to give the “European Idea” urgently needed substance and a forward-looking perspective, not least given the upcoming German EU Council Presidency. 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.
Tackling the crisis with Sustainable Finance – concrete proposals
Proposals included in the Sustainable Finance Committee’s Interim Report can contribute to combining the economic reboot in the coming weeks and months with sustainability.
For the government’s increased borrowing on national and state level, the increased issuing of green bonds or a sovereign SDG bond would alleviate the negative economic and social consequences of the COVID-19 pandemic, while mobilizing and crowding-in investment for greening projects nationally, thereby providing a decisive boost for this segment in Germany. The ICMA voluntary guidelines (Social Bond Principles and Sustainability Bond Guidelines) offer sufficient project categories worthy of support included in the current and future state budget. In addition to federal bonds, issuance of SDG bonds at the EU level should be considered.
Furthermore, it is now especially important to create the necessary regulatory framework and enabling conditions to facilitate investment in more sustainable projects for infrastructure improvements and across industries within Germany and wider Europe. The same applies to the development of government guarantee systems for sustainable investments. Both initiatives would create timely multiplier effects, boosting market developments in areas such as mobility and energy storage, and stimulating necessary innovation such as efficiency improvements in production processes or the circular economy. These investments would in turn lead to new, resilient, and sustainable jobs in Europe.
In the area of corporate finance, acute avoidance of insolvency is the top priority. Nevertheless, it is sensible and important to take a differentiated view of the upcoming loan financing. The Sustainable Finance Committee calls on the federal government to take note of already established and successful policies as regards supportive loans and incentivize measures to increase a company’s sustainability. This could take the form of a public repayment grant at the end of the credit period linked to sustainability criteria, for instance 1.5°-strategies based on benchmarks or KPIs.
The Sustainable Finance Committee will include proposals of the Sustainable Finance Science Platform in this regard in its further work toward the Committee’s final report.
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