As it gears up to assume the EU presidency in July, the German government is getting input from a hard-working committee of experts that was assembled to help it develop and implement a sustainable finance strategy.

The Sustainable Finance-Beirat, as it is known, delivered its interim report in early March. A consultation on the report closed yesterday, after the initial deadline was extended due to the COVID-19 pandemic, while the final report is still expected for this autumn.

“We were told from the beginning to deliver the first results of our work because Germany will want to present them to the EU members and to promote regulations at the EU level on sustainable finance,” Karin Bassler, managing director of the working group for church investors in the German Protestant Church (AKI) and member of the Beirat, told IPE.

She said the committee, with members and observers with different roles, was an “innovative instrument” and that its composition has had a positive impact on the work it has done.

The committee, which was established by the ministry of finance and the environment, and coordinates closely with the ministry for economic affairs, includes representatives of the financial industry, the real economy, civil society and science.

Silke Stremlau, member of the management board at Hannoversche Kassen, a multi-entity group including occupational pension providers, is also on the committee, and said: “In Germany we have a very heterogeneous market with strong lobbyists, and the committee has to fight to stop the lobbyists and to advise the government.”

Stremlau hopes that the government will listen to the knowledge of the experts instead of to the lobbyists because the finance industry is in some respect ahead of the curve.

“For example, we demand a CO2 price that has a function of guidance and the internalisation of external costs,” she said. ”We need real prices for products and I hope that the politicians will be brave so that the market can also adequately react.”

Sustainable stimulus

For some, the virus outbreak is an opportunity to remind the government to align stimulus programmes for the economy to climate targets and the United Nations’ Sustainable Development Goals.

“I hope that COVID-19 has a catalyst function to accelerate the reorganisation of the economy and to connect the rescue packages with climate and sustainability goals on both the national and the EU level,” Bassler said.

Thomas Jesch, managing board member of the institutional investor group Bund Institutioneller Investoren (BII), told IPE it would be difficult to put in place measures to support the economy and link those measures to environmental, social and governance (ESG) policies in a short amount of time.

“The problem is the timeline, but we cannot forget ESG policies during this time of crisis,” he added. “This is also an impulse that comes from the EU, with special emphasis on climate-related legislation,” he added.

In its interim report, the committee already suggested ways to transform the economic and financial system for the benefit of sustainability. For financial investors, it suggested providing certainty through a CO2 price, the use of science-based, forward-looking analyses and stress tests.

The committee also recommended an expansion of the range of sustainable financial products.

Jesch said: “From our point of view, capital investment must be a successful investment, for the insurance holders and for who receives the pension, and we cannot put the return against sustainability.”

Green bubble considerations

In a recent statement, the German Association of Actuaries (DAV) warned that while demand for green investments was ever growing, there was a limited supply of sustainable investment opportunities.

Guido Bader, DAV’s president and a member of the sustainable finance committee, said politicians and supervisors had to take care not to let a bubble in green investments form.

Asked about this, Bader told IPE that DAV welcomed all “serious” sustainable investment opportunities, which would include green bonds issued by federal government, federal states, municipalities or institutions such as the state-owned KfW Bank.

“Only when there is a sufficient volume of safe, long-term sustainable investments can we discuss obliging more sustainable investment from institutional investors,” he said, adding that without such a “sufficient investment universe”, the prices for sustainable investments would inevitably rise and the feared bubble would materialise.

In Stremlau’s view, companies are starting to adjust to the new environment and develop new business models as a reaction to political decisions that sometimes take too long to come, for example on the price for CO2 emissions, but also clear signals towards sustainability from the EU.

“I don’t think that there is a bubble of green products,” she said.

Jesch added: “It is always important to take in consideration the underlying project in Germany or at the EU level with SDGs and PRI criteria. The bubble of green products can happen if projects are labelled as green, but they are not green. We have to avoid a bubble through establishing strict definitions for green bonds.”

Stremlau said that pension funds focusing on long-term investments must look at trends and topics that have an impact globally, and to companies that already successfully tackle them.

“This is why I think sustainable finance is very important, because it looks at the topics of the future, the opportunities, and the risks. It is an arduous process because we don’t have all the data, but for the future, we look intensively at suitability, we invest in all asset classes and long-term,” she said.

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