Germany’s Sparkassen (Savings Banks) and Landesbanken (Federal State Banks) are part of the country’s public credit institutions and together with cooperative banks and commercial banks form the nation’s three-pillar banking system. The Sparkassen are divided into about 400 local sub-institutes and have one of the most widespread branch office networks in the country, with high market shares, particularly in the private savings deposit business. As part of the public sector, they are explicitly not profit-oriented and their main purpose is to provide small savers with the possibility to safely invest their deposits at an interest and to cover the local demand for credit. The DekaBank is the Sparkassen Group’s asset management branch.
The Sparkassen’s umbrella organisation, DSGV, says it fully supports a more coherent and widespread approach to sustainability. Its asset branch, DekaBank, states that it has included sustainable financial products and service in its code of ethics and “filters” possible investment options according to their environmental or social impact. The DSGV warns that not all “green” investments bear fewer risks than conventional ones and that a preferential treatment of the former could lead to greater instability of the finance system in general.
NGO Facing Finance analysed two Sparkassen regional branches, the Stadtsparkasse Düsseldorf and Sparkasse KölnBonn, and concluded that their sustainability practices remained largely wanting. Considerations for climate action in their investment and lending practices not only lacked a coherent framework, they were practically absent altogether. Even though the Sparkassen are supposed to work towards public welfare and are often engaged in promoting regional social initiatives, they take far less account of ecologic aspects along their chain of operations.
Total assets: 1.2 billion euros
(+ Deka Bank: 283 billion euros)
Customers: 50 million
Number of Sparkassen: 385 (with roughly 13,000 branches)
Market share: Company loans 28.4% / Private loans 28.4%
The Landesbanken act as the credit institutions for Germany's federal states. They are comprised under one organisational umbrella with all Sparkassen within their geographic area of operation, with currently five Landesbanken serving all of Germany’s 16 Länder, the federal states. They carry out the states’ banking operations, including loans, and support regional business development investments and small and middle-sized companies in alliance with the local Sparkassen. In 2017, the Sparkassen handled 17 percent of the total business volume of Germany’s banking sector, while the Landesbanken chalked up another 11.6 percent, making these publicly owned banks the largest actors in the country’s banking market.
The two biggest Landesbanken, LBBW from Baden-Wurttemberg and BayernLB from Bavaria, are also among the largest banks by asset size in the country. LBBW says that it aims to “consistently contribute to sustainable and balanced economic, environmental, and social development” and has codified its efforts in its Guidelines for Stability and in its internal climate strategy.
It received the best rating of all banks in the Fair Finance Guide ranking published by NGO Facing Finance thanks to its pledge to install a comprehensive sustainability framework and for demanding compliance with environmental, social and governance (ESG) criteria along the supply chains of projects it is invested in. It also scores well regarding its respect of human and labour rights but receives a lower rating on climate action for its continued acceptance of coal and oil-related activities.
BayernLB, along with its DKB credit branch, also positions itself as a bank that has internalised sustainability in all of its operations, both as a guiding principle of its code of conduct and a well of future business opportunities, ranging from renewable energy investment to climate-risk assessment. However, the Bavarian state institute is criticised for a lack of concrete social and environmental evaluation principles in all of its operations that would underpin these aspirations and for financing a range of emission-intensive operations like coal-fired power production and hydraulic fracking.
Total assets: 861 billion euros
No. of Landesbanken: 5
Market share: Company loans 13.1% / Private loans 1.7%
The Volksbanken (Cooperative Banks) are cooperative financial institutions and, along with the Sparkassen, the main banking service providers in Germany, with a dense network of thousands of branches. A large share of their customers are members of the cooperatives that own the banks, which gives them a higher degree of influence on their operative focus. The Volksbanken and other banks from the cooperative sector together accounted for 12.6 percent of the total banking business volume in Germany in 2017.
DZ Bank is the cooperative banking sector’s central institution and investment bank and the second biggest bank in the country by asset size. Its asset management activities are bundled under its Union Investment subsidiary. DZ Bank has committed to international business guidelines, such as the UN Global Compact on sustainable company governance, and installed a corporate responsibility committee to streamline the group’s sustainability efforts. It also began issuing its own green bonds in 2018.
In the Fair Finance ranking, however, the bank scores rather low and its climate action credentials fail to convince observers. While conceding that DZ Bank’s promise to cease funding of new coal plants points in the right direction, the Fair Finance Guide takes the bank to task for no longer revealing its exclusion criteria for investment funds and failing to take a clear stance against further oil and gas exploration.
Total assets 2018: 935 billion euros
Customers 2018: 18.6 million
Number of Volksbanken: 875 (more than 10,000 branches)
Employees 2018: 142,850
Market shares: Company loans 18.1% / Private loans 24.1%
Privately owned commercial banks are the third pillar of the German financial system. The Association of German Banks (Bundesverband deutscher Banken), the umbrella organisation of all private banks and branches of foreign banks in Germany, consisted of 180 members as of mid-2019. However, among all private banks, Germany’s Großbanken (Large Banks), Deutsche Bank and Commerzbank, stand out as the most important private institutions in the country due to their asset size, capitalisation and market share.
Deutsche Bank, the largest private bank in the country, offers a wide range of financial services and operates through subsidiaries, such as its DWS Group asset management unit, in different sectors of the capital market. The bank adopted an “Environmental and Social Policy Framework” in 2011 to review the risks and consequences of investment decisions. It distances itself from activities that undermine sustainability criteria and has also begun to partially ban coal investments. Deutsche Bank has also developed an ESG engine for asset management operations that it says is at the heart of its attempts to establish a clear sustainability methodology for its entire investment portfolio.
The Fair Finance Guide nevertheless criticises Deutsche Bank’s internal evaluation criteria for not being transparent enough, stressing that efforts to curb investments in the fossil fuel and arms industries and to boost low-carbon and environmental projects remain inadequate. It scores particularly low on climate and environmental action and slightly better on energy and mining activities.
Total assets: 1,348 billion euros
Customers: 20 million (worldwide)
Branches: roughly 1,360 (in Germany)
Employees: 91,000 (41,000 in Germany)
Commerzbank is Germany’s second largest commercial bank, ranking fourth in asset size. The German state became the bank’s largest shareholder in 2009 to prevent a takeover in the wake of the global financial crisis. Its activities are more focussed on German and European credit markets than that of Deutsche Bank and it also does not operate a major asset management service on its own.
The bank has also adopted a policy framework on environmental and social risks and says ecologic, social and ethical criteria are key principles of its work, backed by the application of several international sustainability guidelines.
While the bank is ranked high by the Fair Finance Guide in terms of its anti-corruption efforts, it scores considerably worse on climate and environment due in part to the lack of carbon disclosure figures and unclear exclusion criteria for unsustainable investments. However, the report acknowledges that Commerzbank is committed to a clear coal investment reduction path and that it has set itself measurable targets for low-carbon energy funding.
Total assets: 503.2 billion euros
Customers: 18 million (worldwide)
Branches: about 1,000 (in Germany)
The Deutsche Börse AG is the leading operator of Germany’s stock market and manages the trading of shares and securities in the country. The group provides trading infrastructure, regulation and financial services to other market participants and is itself listed on the German stock market. It also operates the leading stock market index, DAX (similar to the UK’s FSTE 100 or the US’ S&P 500), which gives investors an overview of the stock price performance and other market data of companies listed on the German stock exchange. Deutsche Börse Group likewise operates the European Energy Exchange (EEX), the biggest trading platform for energy and related products in Europe.
It helped launch the Green and Sustainable Finance Cluster Germany industry network and also established its own sustainability strategy. Deutsche Börse says it applies a so-called materiality analysis to monitor developments that could impact the company’s business or that of its clients in the future. It also states that its customers have access to a range of sustainability indices.
Allianz & Munich Re
Like banks, insurance companies are a central pillar of the financial system. They act as stabilising agents by pooling risks and as investors by providing large sums collected as insurance contributions to capital markets. Important insurers in Germany include Allianz, Talanx AG, Generali and the cooperative-owned R+V.
Allianz SE is by far the largest insurer in Germany and also a leading global insurance provider. Through its asset management branch, Allianz Global Investors, it’s also one of the largest capital providers in Germany and worldwide. Allianz has vowed to make all of its investments climate-neutral by 2050 and to no longer sell insurance coverage to coal companies, not least because the company itself is greatly exposed to the damages caused by rising global temperatures. Allianz has said climate change, environmental destruction and natural disasters figure among the most important international “megatrends” that will shape its future business.
Allianz 2018 Figures:
Revenues: 130 billion euros
Customers: 92 million (worldwide)
Employees: 142,000 (26,700 in Germany)
Assets under management: 1.9 trillion euros
Other important actors in Germany’s financial system are re-insurance companies, which can be described as “insurers of the insurers”. They assume part of the risks held by regular insurance companies to ease the potential burden of large financial claims.
Munich Re is among the world’s leading reinsurance companies, ranking ahead of competitors like Swiss Re, Berkshire Hathaway and Hannover Re, according to industry media. Munich Re calls itself a specialist in managing “complex risks” and has already been factoring in climate change as a potential liability for several decades. Apart from the risk posed by extreme weather events, Munich Re also explicitly classifies political “intervention in the markets” and regulatory changes in line with climate action efforts as factors that could confound its projection and warns against potential geopolitical risks associated with rising temperatures. Munich Re has introduced new insurance approaches for a low-carbon energy system, such as battery performance insurance, and vowed to reduce its exposure to coal risks.
Revenues: 49 billion euros
Employees: 41,000 (worldwide)
Assets under management: 254 billion euros
In a 2019 ranking that assessed German insurances’ commitment to sustainability efforts, Allianz and Munich Re scored well in comparison to national competitors. However, both have also been criticised for inconsistencies in their investment patterns, such as their persisting activities in the Polish coal industry.
Regulators / State institutions
Germany is a member of the Eurozone and signatory to other international agreements and conventions and as such its financial markets and institutions are subject to a wide range of norms and regulations that are beyond immediate national control. However, national institutions in Germany still have a large influence on the industry’s functioning as they often assume executive roles and implement international rules.
The Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Germany’s federal financial supervisory authority, is responsible for ensuring regulatory compliance within the financial industry. Launched in 2002 under the aegis of the finance ministry, the BaFin in 2018 acted as the watchdog for well over 2,000 banks, pension funds and insurance companies in the country.
The agency says it follows an “integrated” approach that identifies connections and interdependencies between different sectors to apply “consistent and concerted” supervision. However, it only started integrating sustainability on a broader basis in 2018 by agreeing on a “first concept” for sustainability based on “information, risk management and regulation” and establishing an expert network across its various areas of operation. The BaFin defines as part of its mandate assessing the risks of climate change and consequences of the energy transition at the “microprudential” level, meaning the impact on individual financial companies.
The Bundesbank is Germany’s central bank. With the end of its former national currency, the Deutsche Mark, and the full introduction of the Euro in 2002, the Bundesbank became an integral and very influential part of the European System of Central Banks, with the European Central Bank (ECB) assuming most of the national banks’ former roles. Nevertheless, the Bundesbank is still involved in ensuring price stability in the Eurozone, manages Germany’s financial reserves and handles the flow of physical currency.
It also acts as a banking supervisory institution and evaluates the annual reports of the country’s banks, provides metrics about their solidity and coordinates regulatory intervention along with the BaFin.
The Bundesbank joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) in 2018 as a member of the steering committee. As such, it vowed to commit to the promotion of climate objectives, risk management and accountability. The NGFS, which is co-steered by the Bank for International Settlements, represents a large fraction of global GDP and greenhouse gas emitters and is growing rapidly as more and more countries and international institutions join it or align with it as observers.
The Kreditanstalt für Wiederaufbau (KfW), Germany’s public development bank, is a key driver of green and sustainable finance in the country. The state-owned institute was launched after World War II in order to finance reconstruction works and today is among the country’s largest banks by asset size.
Its functions include facilitating small and medium size business start-ups, helping to fund investments in public infrastructure works and housing construction, and financing energy saving schemes across the board. The development bank is especially active in the funding of energy-efficient construction and low-emission heating by granting preferential credit lines to home owners. In 2018, about 40 percent of its total development funds went into climate action and environmental protection projects.
The KfW also actively supports climate and energy investments abroad, notably in developing countries, with both public and private partners. It plays a key role in the country’s economic cooperation and development policy and has as a result faced criticism for maintaining coal sector investments abroad.
KfW Figures 2018:
Total assets: 485 billion euros
Development funds: 76 billion euros
Clerical / Alternative banks
Green and sustainable finance practices in Germany were not pioneered by the largest financial market actors in the country, but rather by small and less commercially driven institutions that mostly acted out of an ethical impetus, including several banks run by the church and those emanating from the peace and ecology movement of the 1970s. Despite their small market share, these banks today continue to act in many respects as best-practice setters in green finance.
One of the first alternative banks that focussed on sustainable investments and an important institution today is the GLS Bank, founded in 1974 on a cooperative banking model. A 2017 study by Stuttgart University found that the bank had developed “remarkable and outstanding concepts and financial products” that served as a template for many renewable power funding contracts that were later used by other banks, mainly the Sparkassen and Volksbanken. It also ranked first in the Fair Finance Guide.
GLS Bank 2018 Figures:
Total assets: 5 billion euros
Other important alternative banks active in Germany include the Umweltbank, Ethikbank and Dutch bank Triodos.
Clerical banks comprise yet another special sector with their long history of applying investment criteria that prohibit investment in activities that run counter to its stated religious principles. Both the Evangelical/Protestant Church of Germany and the Catholic Church have issued guidelines that stipulate management of the churches’ considerable financial assets along sustainability principles.
Given the lack of an internationally or nationally agreed upon regulations and standards for what constitutes green or sustainable investors, one of the best approximate measures of their environmental and social impact is offered by various sustainability rating agencies. Just like regular rating agencies gauge the creditworthiness or solvency of given actors, sustainability ratings measure their adherence to sustainability criteria and evaluates them accordingly.
One of the first companies to offer this kind of rating service was Munich-based oekom. It was founded in 1993 and acquired by US shareholder service provider ISS in 2018. It rates more than 6,200 international emitters of shares and other investment products and has gradually expanded its presence to various countries in recent years. The ratings by oekom and its competitors have become an important benchmark for most major banks and other financial actors in Germany and beyond and regularly figure in their annual report to prove the companies’ sustainability credentials. Other important raters include Dutch agency Sustainalytics, Hannover-based imug and US firm MSCI, which does not specialise exclusively in ESG ratings but is nevertheless seen as a significant index provider.