Germany's new stock exchange rules fail to allay climate concerns as ECB issues warning

Climate activists have criticised new stock index rules introduced by Germany's stock exchange operator Deutsche Börse for not going far enough to curb the climate impact and other harmful activities of listed companies. Deutsche Börse's revised regulation for the German benchmark stock index DAX tightens reporting obligations for companies but according to NGO Urgewald and the Association of Ethical Shareholders, crucial changes to limit controversial activities like arms trading or large-scale greenhouse gas emissions are lacking in the reform. "It is incomprehensible that, in light of advancing climate change, a binding commitment to climate action is lacking for the entire DAX family," Urgewald's Barbara Happe said. She called the reform "a pathetic display" and "a step backwards for human rights and climate action in the financial sector." Deutsche Börse's refusal to even make nuclear weapons production a disqualifier for its listing shows that “the ambition to become a sustainable financial location is merely a fig leaf," Happe argued.

Deutsche Börse's Stephan Flaegel said the stock exchange operator had seen "very mixed opinions" regarding the ESG (environmental, social and governance) criteria for sustainable finance. Participants in the preceding consultation process had raised "the general question whether such criteria should play a part in the selection of DAX constituents," Flaegel said, adding that sustainability nevertheless would "remain one of the most important trends in the financial markets" that is going to "fundamentally change investment behaviour" at some point in the future.

The new rules came just one day ahead of an announcement by the European Central Bank (ECB) on its financial stability review. In it, the ECB urged banks and "the rest of the financial system" to step up their efforts "to manage the financial stability risks posed by climate change and support the transition to a greener economy." Earlier this week, the G20's Financial Stability Board (FSB) published a report that examines potential implications of climate change for financial stability, finding that the "breadth and magnitude of climate-related risks" could outweigh that of other economic risks and "challenge financial risk management in ways that are hard to predict."

Sustainable finance and the effects of capital markets on climate action have firmly shifted into the focus of German and European financial policy in the past years, but binding measures to better anchor ESG criteria and other climate-friendly regulatory changes are yet to be introduced. Financial market actors like Deutsche Börse argue that tight rules could distort market efficiency and instead bet on voluntary industry initiatives to increase sustainability efforts in finance.