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How the financial center should become greener

D.the contradiction sounded violent, and that is exactly what Christian Klein wanted to achieve. Money and sustainability, said the finance professor at the University of Kassel at an event in Frankfurt at the end of last year, these two terms fit together as well as Greta and Trump or Porsche and speed limit, so: not at all.

The statement should underline that sustainable investments in Germany are not yet particularly good because, according to Klein, many investors assume that sustainable investments and high return expectations are mutually exclusive. But that is not correct, as numerous studies have shown. In addition, many people do not know enough about sustainable financial products, and conversely, banks lack the supply.

All of that should change. The Green and Sustainable Finance Cluster, which was founded almost three years ago in Frankfurt, is supposed to ensure this. The primary goal of the initiative is for financial institutions to become more aware of the responsibility they play when converting to a more sustainable and ecological economic system – and accordingly base their investment decisions more on whether the companies or projects in which they are to invest are sustainable are.

For Frankfurt, this development, which is becoming increasingly important in banks, is both an opportunity and a challenge. Opportunity because the financial center is to be developed “into a center of a sustainable economic and financial system”, as Economics Minister Tarek Al-Wazir (The Greens) said on Monday at the opening of a conference on green finance in Frankfurt. “When you see how financial centers are positioning themselves internationally, sustainable finance is one of the key competitive factors,” added Kristina Jeromin, who heads sustainability management at Deutsche Börse and in this role is also managing director of the cluster, together with Karsten Löffler.

Customers want sustainable investments

The reason why banks are becoming more active here is obvious: They have discovered that loans to companies with less sustainable business models are not only morally difficult, but could also represent too great an entrepreneurial risk because these companies are in a more environmentally conscious society in the medium term could lose ground. In addition, it is also customers who are increasingly asking about sustainable investments, as studies show and bank managers often confirm.

But at the same time, Frankfurt has to be careful not to lose touch with the important topic of sustainable investments. Because at many locations, the political framework conditions to promote green investments began earlier, be it in the Netherlands, Luxembourg and Scandinavian countries.

Germany play an important role for a sustainable financial system

Now, however, Germany wants to catch up and, according to Al-Wazir, play an important role in establishing a sustainable financial system. According to the minister, global warming and the increasing scarcity of resources made it urgently necessary to link financial issues with economic, ecological and social benefits. “The financial sector has a special role here because it covers investment needs and finances activities in the real economy.” It is clear that sustainability aspects must be taken into account in financing.

There is a long way to go towards a financial system that is not only geared towards profitability targets, but also towards social and environmental aspects. Many financial institutions have the problem that there are often sustainability reports in the real economy, but the question remains open as to which criteria and data can be used to evaluate a sustainable corporate strategy and whether this data is even available.

What will happen to my money?

The cluster initiated by the Hessian Ministry of Economic Affairs takes on an important function here: The experts working there were involved in the creation of an EU-wide system, with the help of which economic activities are to be classified with regard to their environmental profile, the technical term for this is taxonomy. With the help of such instruments, future investment decisions in favor of sustainable investments should be better justified. “There are many more people today who are wondering what is being done with their money than in the past,” said Al-Wazir.

The example of Deutsche Bank shows that this has also reached the big banks. In June, the Frankfurt group placed its first ecological and sustainable goals bond; the demand for it was almost ten times as high as the issue volume of 500 million euros. In five years, Deutsche Bank CEO Christian Sewing said on Monday that a company’s sustainability rating would be as relevant as its classic credit rating.

Sewing sees banks “on the right track” with sustainable investments

But the banks themselves would also have to adjust internally to sustainable investments, Sewing continued. It must be normal for bank advisors to talk to their corporate clients about their ESG criteria. ESG stands for the terms environmental, social and corporate governance, i.e. for the environment, social issues and principles of corporate governance. But despite all the difficulties, Sewing is optimistic: “I think we’re on the right track here.”

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