Economy & Politics

Column Climate protection number one: the financial market

Benedict Herles
Benedict HerlesPR

Joe Biden could fail as a great climate protector. His election program envisaged a CO2-free energy supply by 2035, the whole country should be climate-neutral by 2050. $ 2 trillion should go to sustainable infrastructure and industry. But for such an ambitious plan the 46th President of the United States would have needed a majority in the Senate, and Biden will probably lack that. From today’s perspective, it is unlikely that the Democrats will win the two runoff elections in Georgia. The USA will nevertheless join the Paris Climate Agreement again and one or the other executive order should be possible. However, there will hardly be any major environmental policy success. In contrast, minimum climate compromises are very likely in the next two years (at least up to the midterm elections).

And on the other side of the Pacific? In his virtual speech at the UN General Assembly in September, Xi Jinping announced that his country would be climate neutral by the year 2060. The new five-year plan will be adjusted accordingly. The Middle Kingdom is responsible for around 30 percent of all CO2 emissions worldwide, making it by far the largest carbon dioxide emitter. Xi’s announcement was therefore interpreted as a possible “game changer” in global climate policy.

In recent years, China has been criticized not only for its own dependence on coal-fired power generation, but also for the extensive financing of coal-fired power plants abroad. According to the political advisory firm Eurasia Group, banks in the country have invested over 45 billion dollars in coal projects in Southeast Asia alone since 2000. However, new guidelines for the Chinese banking system now speak for a shift towards sustainable financing activities at home and abroad. The Chinese People’s Bank, the country’s central bank, will increasingly take sustainability aspects into account in its supervision of the banking system. In the fight against climate change, China is clearly relying on the financial sector and is thus moving a lever with a lot of force: Four of the five largest credit institutions in the world come from the People’s Republic.

A related strategy is well known in the European Union. The instrumentalization of the capital market plays a central role in the realization of Ursula von der Leyen’s Green New Deal. With initiatives like the Sustainable Finance Taxonomy, the EU ultimately wants to achieve an ecological flow of capital. ECB President Christine Lagarde has long been in favor of a “green monetary policy” and emphasizes the importance of the European Central Bank for climate protection.

Thought through…

The dreamed-of climate tractor, the USA, is probably not getting anywhere, China and Europe are playing the capital market card. This is also how the financial market is developing into the number one climate protector. There are also non-political factors:

Young investors from generations Y and Z in particular want their money to be invested in a more climate-conscious manner. In 2035, American millennials will have net worth surpassing baby boomers. Asset managers have to adapt to these growing customer groups. In addition, more and more asset managers have clearly understood that climate change is not only an ecological, but above all an economic risk. Natural disasters endanger investments and supply chains, customers change their preferences and demand sustainable product ranges, companies have to adapt to new regulatory requirements. And so the factor “sustainability” is becoming increasingly important in portfolio and investment decisions. This benefits stocks and bonds from sustainable companies. Since the outbreak of the Corona crisis at the latest, sustainability indices have in some cases performed above average.

The new role of the financial sector as a driver of climate protection will have economic and business consequences. Firms in “brown” industries have to find their way in an increasingly difficult financing environment. So-called “stranded assets”, ie investments that have become more or less worthless, could put a strain on balance sheets. Selling such units will prove difficult or impossible in a selective market environment. The result could be accelerated structural change in the overall economy with corresponding social implications for the workforce affected. And the more money goes into green industries and investment opportunities, the greater the risk of bubbles forming.

For capital market-oriented companies, however, a “green equity story” is becoming increasingly important. In the future, CEOs will be measured by whether they manage to adapt their business and operating model for sustainability and to communicate to investors. A green financial market will still drive many a company management in front of it. Action required!


Benedict Herles is Personal-Financial.com “Top 40 under 40”, Head of Sustainable Transformation at KPMG and host of the podcast “Zeitenwende”. His latest book: “Blind to the future – How we lose control over progress” (Droemer).


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