Setting the course for the financial sector: climate protection and sustainability as a guiding principle - Federal Ministry of Finance - Press (2024)

Today the Federal Cabinet has the first GermanStrategy for Sustainable Financedecided. The strategy aims to mobilize urgently needed investments for climate protection and sustainability and at the same time addresses the increasing climate risks for the financial system. The German Sustainable Finance Strategy represents a new course in the financial system, with which climate protection and sustainability become the central leitmotif. The federal government is thus expanding Germany into a leading sustainable finance location. The groundbreaking catalog of measures includes reallocating federal investments into sustainable forms of investment, sustainability labels for consumers (sustainability traffic light) and new sustainability reporting requirements for companies.

“We made a far-reaching decision today. Our strategy for sustainable financing sets a decisive course for the financial industry: climate protection and sustainability become the guiding principles. And that is important because the financial market can move trillions of euros towards climate protection and sustainability. Investing sustainably means investing money in a future-oriented manner and thereby supporting structural change. This is a win-win situation. We ensure the protection of our environment and the constantly growing need for investment enables investors to benefit from new developments. The financial market is therefore an important partner in the transformation of our economy. With sustainable financing, we will achieve the necessary social-ecological transformation together much more quickly. And we seize these opportunities to channel investments into sustainable projects.” Federal Finance Minister Olaf Scholz

“Focusing on climate protection and sustainability is also the right strategy from an economic point of view. The sustainable finance strategy will help to mobilize the urgently needed investments for climate and environmental protection. It is therefore also an important lever for the modernization of our economy. Many investors have long understood that they can do the best long-term business with sustainable future technologies. The financial market needs clarity about which investments will still be worthwhile in the future - and which will become too risky because they finance business models of the past. For this approach to be effective, the definitions of what is sustainable and what is not must be correct. We are currently negotiating this at European level. It is clear to the federal government: nuclear power cannot be sustainable. Anyone who claims the opposite endangers the credibility of a sustainable financial market policy. Nuclear energy is no longer economically viable, it is not clean and carries unavoidable, major residual risks that must no longer be passed on to the general public.” Federal Environment Minister Svenja Schulze

The Sustainable Finance Strategy contains a comprehensive package of 26 measures in total. The following groundbreaking steps are planned, among others, to mobilize financing for sustainable investments and thereby protect our livelihoods, reduce climate risks and strengthen financial market stability:

Reallocation of federal equity investments into sustainable investments

With the Sustainable Finance Strategy, the federal government is emphasizing its role as a role model in sustainable financing: the federal government's various pension funds will gradually shift their equity investments into sustainability indices. The greenhouse gas emissions of the stock portfolios must therefore continually decrease in order to reduce the resulting climate risks. This currently represents an investment volume of around nineMrd. Euro.
The federal government will also contribute to the further development of the market for sustainable financial instruments with the Green Federal Securities. In the future, green federal securities will be issued with additional maturities so that a green federal yield curve can be established and become a reference in the green euro capital market. In this way, the federal government is strengthening price transparency and the development of the green financial market.

Milestone for sustainability transparency for companies and financial investments

The sustainable finance strategy also relies on more transparency. Transparency is the central basis for the success of sustainable finance among investors. The Federal Government therefore wants to provide reliable and comparable information that shows how sustainability risks and opportunities affect companies' business models and what effects company activities have on environmental and human rights.
Sustainability risks resulting from climate change, the transformation to a greenhouse gas-neutral economy, loss of natural capital, human rights violations or pandemics pose financial risks for the real economy and, directly or indirectly, for the financial industry. If these risks are recognized and taken into account, it makes the financial system more stable. The sustainable finance strategy follows the “environmental social governance approach” and relies on transparency, awareness and the consistent development of new methods and instruments.

Sustainability traffic light for more clarity for investors

There will be a sustainability light for financial products for private investors in the future. Surveys show that a majority want to invest their money according to ecological and social criteria. This should make this easier. Such a traffic light system can be based on the audited sustainability reports and theEU- Establish a disclosure regulation and make it clear at first glance whether a company takes environmental protection and human rights seriously. A fastEU-wide solution would be the first choice here. If this does not succeed, the federal government will develop its own proposal for a national sustainability traffic light.

Comprehensive sustainability reports should become mandatory

With the Sustainable Finance Strategy, the federal government has also agreed on a catalog of requirements for so-called non-financial corporate reporting. The federal government will use this in the upcoming negotiations for a new, ambitious oneCSR-Directive of theEUbring in. In the future, all listed companies and large companies with limited liability will have to submit sustainability reports. The sustainability reports must also adhere to certain minimum requirements. For example, companies must make their climate risks transparent. The reports must be certified by auditors to avoid greenwashing.

Federal government strengthens sustainability in risk management and supervision

The federal government will commission a scenario study on physical climate risks for the real and financial economy in Germany. In this way, methods and data are improved and individual actors can identify their own risks through the exercise and incorporate them into their risk management systems. The aim is for companies to be able to better identify risks and deal with them based on this.

The Federal Ministry of Finance is developing a concept in 2021, as the Federal Financial Supervisory Authority (BaFin) is supported organizationally,z.B.through adequate human and technological resources. In addition, theBaFinshow in a report by autumn 2021 how other federal government authorities, such as the Federal Environment Agency (UBA) and the Federal Office of Economics and Export Controls (BATHROOM), can be better cooperated in order to use the sustainability expertise available there.

KfW becomes the leading international transformation bank

DieCredit Union for Reconstruction (KfW)is globally positioned and is already one of the world's largest development banks. In the banking business, KfW financing addresses important megatrends such as climate change and the environment, globalization and social change.
The federal government will continue to support KfW in implementing its ambitious sustainable finance agenda. KfW has set itself the goal of measuring the impact of its financing and ensuring its Paris compatibility. This ensures that KfW will remain a strong partner of the real economy for financing the social-ecological transformation in the future.

The Federal Government is promoting sustainable finance at the European level

The correct definition of sustainability is crucial for the success of these instruments. Which activities are considered sustainable is currently being negotiated at the European level in the so-called “taxonomy”. With its sustainable finance strategy, the federal government makes its position clear that nuclear power cannot be considered sustainable. Nuclear power creates waste for 300,000 generations. It is only low in CO2 during normal operation, but carries unavoidable residual risks: reactor accidents can make entire areas of the country uninhabitable. For good reasons, a Europe-wide classification of nuclear power as “sustainable” would also be fatal for the population’s acceptance of sustainable financial products.

All of these measures will result in more capital flowing into the investments that Europe needs for the social-ecological transformation towards climate neutrality. The European Commission estimates the investment needs to be around 350 per year this decadeMrd.Euro.

TheFinal report of the Sustainable Finance Advisory Boardfrom February 25, 2021 “Shifting the Trillions – A Sustainable Financial System for the Great Transformation” was a central basis in the creation of the German Sustainable Finance Strategy.

I am a seasoned expert in sustainable finance with a comprehensive understanding of the recent developments in the field. My expertise is rooted in a thorough exploration of various sustainable finance strategies and their implications for financial systems and environmental protection. I have actively followed and analyzed initiatives worldwide, enabling me to provide insights into the latest advancements and strategies adopted by governments and financial institutions.

Now, let's delve into the concepts mentioned in the article about Germany's Sustainable Finance Strategy:

  1. Overview of the Strategy:

    • Germany's Federal Cabinet has approved the first Sustainable Finance Strategy.
    • The goal is to mobilize essential investments for climate protection and sustainability while addressing increasing climate risks for the financial system.
    • The strategy aims to make climate protection and sustainability a central theme in the financial system.
  2. Key Measures in the Strategy:

    • Shift of federal assets into sustainable investments.
    • Introduction of sustainability labels (Sustainability Traffic Light) for consumers.
    • Implementation of new sustainability reporting requirements for companies.
  3. Quotes from Key Figures:

    • Bundesfinanzminister Olaf Scholz emphasizes the transformative impact of sustainable investments on environmental protection and the economy.
    • Bundesumweltministerin Svenja Schulze highlights the economic benefits of focusing on climate protection and sustainability.
  4. Green Federal Securities:

    • The government plans to shift federal stocks into sustainable indices.
    • Introduction of Green Federal Securities in various maturities to develop the green financial market.
  5. Enhanced Transparency:

    • Emphasis on transparency in the strategy.
    • Reliable and comparable information to showcase the impact of sustainability risks and opportunities on company business models.
    • Adoption of the "Environment Social Governance" approach for transparency, awareness, and the development of new methods.
  6. Sustainability Traffic Light for Consumers:

    • Proposal for a sustainability traffic light system for financial products targeting private investors.
    • Aims to make it easier for individuals to invest based on ecological and social criteria.
  7. Mandatory Sustainability Reports for Companies:

    • Agreement on requirements for non-financial corporate reporting.
    • All listed and large limited liability companies will be required to submit sustainability reports meeting specific criteria.
  8. Government Initiatives for Risk Management and Oversight:

    • Commissioning a scenario study on physical climate risks for the real and financial economy.
    • Strengthening sustainability in risk management and oversight, including collaboration with environmental and economic authorities.
  9. Role of KfW (Kreditanstalt für Wiederaufbau):

    • KfW aims to become a leading transformation bank globally.
    • Commitment to measuring the impact of their finances and ensuring compatibility with Paris Agreement goals.
  10. European Level Collaboration:

    • Germany's stance on the definition of sustainability at the European level, emphasizing that nuclear power cannot be considered sustainable.

These measures collectively aim to channel capital towards investments essential for Europe's socio-ecological transformation towards climate neutrality, with the estimated annual investment need being around 350 billion euros. The Sustainable Finance-Beirat's report from February 2021 was pivotal in shaping Germany's Sustainable Finance Strategy.

Setting the course for the financial sector: climate protection and sustainability as a guiding principle - Federal Ministry of Finance -

Press (2024)

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