But pulling money out of fossil fuels is only one part of the solution. If we aim towards a low-carbon economy, this money then needs to be invested in “Green” assets, e.g. in renewable energies. What are the obstacles preventing this today? Is the finance sector ready for this transition? Who has to work together to speed up the shift of the financial sector towards a more sustainable investment strategy? These were questions that were discussed at a “Divest/Invest” conference in Frankfurt on September 15, 2016, organized by the Green Groups in the German Bundestag and the European Parliament. Many high-level speakers and about 200 guests from the financial sector, academia and civil society discussed climate risks in the financial sector, reporting standards, sustainable investment products and political levers to achieve the turnaround towards a green finance sector.
Equal disclosure standards for climate related company data
The first panel, named "Disclosing Risks, Revealing Opportunities: What Information do Financial Markets Need for a Sustainable Transition", discussed the sustainability efforts of Germany's biggest insurer Allianz and the question of transparency and availability of climate related financial data.
Heat waves and forest fires have had a significantly negative effect on the balance sheet of Allianz in the second quarter 2016, said Oliver Bate, CEO of the company. Following the withdrawal of investments from companies that produced more than 30 percent of its sales related to coal power, Allianz now examines and reviews their financial reserves with respect to corporate governance as well as environmental and social standards. Based on this data, the insurer can then approach the respective companies in order to strengthen sustainability goals.
Christian Thimann, head of strategy and sustainability issues at the insurance group AXA and vice chairman of a working group of the international Financial Stability Board (FSB-TCFD) on climate-related disclosure obligations, reported on the work of this Task Force. From about 400 different global reporting standards, this group wants to develop a standard that is globally standardized and recognized by all market participants. This data should then be a central part of the corporate financial reporting. To ensure a rapid implementation and avoid years of negotiation processes, these new reporting standards should be applied voluntarily as a first step. Both Oliver Bäte as well as Matthias Hellstern, Managing Director of Corporate Finance in the EMEA area of the rating agency Moody's, stressed that regulation is necessary to achieve this.
Maximilian Horster, climate and financial expert of the Southpole Group, pointed out that a mandatory reporting on climate risks for companies could be a political measure to implement the Paris Climate Agreement. Oliver Bäte added that it’s also essential to revise the legal bases for fiduciary duty, so that asset managers can invest on a long term basis and respecting environmental and social criteria instead of chasing short-term gains.
Centers of excellence for the financial transformation
The second panel discussion focused on the topic of "Promoting the Development and Diffusion of Green Financial Products". Caio Koch-Weser, President of the European Climate Foundation, mentioned among other topics the role of London in his overview presentation. Its financial sector tries to be at the forefront of the worldwide Green Finance development. Why can’t Frankfurt also be a center of the financial turnaround?
Sir Roger Gifford, chairman of the City of London Green Finance Initiative, was in favor of this and stated that this is not a race between cities, but against time. The more financial centers that recognized the seriousness of the situation and switched to sustainable financial products, the better. Especially, green bonds are a transparent vehicle to promote more green investments due to the clear assignment to projects.
Anja Mikus of Arabesque Partners and Jochen Wermuth, Wermuth Asset Management, discussed the priorities for whom these products should be developed first:, institutional investors or private customers. All participants agreed that the most important is to develop clear standards about what sustainable investment is and what it is not.
Political action is necessary
On the third and last panel "Investing, incentivizing or Regulating? The Paris Agreement, the G20 Green Finance Study Group and Political Levers for the financial turnaround", the participants discussed policy approaches for a financial shift.
The Swedish Financial Markets Minister Per Bolund made it clear in his keynote that a clear policy framework is the most important ingredient to push green finance. On the example of Sweden, he underlined that economy and ecology are not mutually exclusive – despite a considerable CO2 tax, the economy in Sweden has been flourishing for years.
Simon Zadek of the UNEP Inquiry into the Design of a Sustainable Financial System added other examples from China, praised the results of the recent G20 Summit in Hangzhou and urged Germany to push the Green Finance issue on a global scale during its upcoming G20 presidency. Heffa Schücking of the environmental and human rights NGO Urgewald was more pessimistic: although China indeed brought pioneering climate and fiscal policy initiatives along the way, at the same time, public Chinese banks still invest heavily in coal power plants abroad to protect its domestic coal industry. Germany behaves militarily, as would Sweden, by selling the coal sector in the Lausitz, instead of having it phased out. At the same time, Schücking called for greater transparency in order to be able to effectively promote divestment from fossil fuels.
