German govt council calls for urgent action to avoid climate shocks in finance
Clean Energy Wire
The German government's sustainable finance council has published a report calling for urgent action to avoid climate-related shocks to the financial system. In its first interim report, the council lists dozens of measures to make Germany's financial sector more sustainable and competitive, outling ways the sector can react to international developments in climate policy and how the country can reach its goal of becoming a leader in sustainable finance. The body, which was officially launched in mid-2019, consists of government officials, representatives from financial companies and other industries, and participants from civil society organisations. The council addresses three main actors: the government itself as well as subordinate public institutions; companies from the real economy; and financial market players. "Sustainable finance needs to be understood as a central, comprehensive and overarching task for the financial sector, which requires coherent decisions across the board," the report says.
The report lists several key government measures that could prompt changes in financial markets: an "effective" carbon price; budgeting that provides for stimulus packages and guarantees funding for political aims; and close participation in shaping and implementing the EU's Green Deal and sustainable finance action plan. Moreover, companies should get ready to carry out "integrated reporting," which encompasses both financial and sustainability factors and includes common goods and social costs in corporate accounting. Financial market actors, on the other hand, should strive to make sustainable finance products more transparent and better explain their advantages to customers. Likewise, they ought to factor sustainability into risk management and investment strategies and adjust corporate incentive and sanction mechanisms in line with sustainability goals.
Council member Matthias Kopp from WWF Germany called on the government to act. "The year 2020 will be a decisive year for climate protection, with Germany playing a central role in the EU with its Council Presidency in the second half of the year. The government must clarify its level of ambition for a sustainable financial system," Kopp said, adding the report called for aligning public investment and budgets with the targets of the Paris Climate Agreement. "Financial markets in other countries are much further ahead, such as in the UK and the Netherlands." Council member Christoph Bals from environmental NGO Germanwatch called the report a "good interim result" that must now be complemented with concrete action points. "In particular, the obligation to provide forward-looking reporting on climate-related financial risks could be an important contribution against the tragedy of the short-term horizon of financial markets in Germany and the EU," Bals said.