Private climate finance under scrutiny on eve of Paris summit
Two years to the day after the historic Paris Agreement on global climate action was passed, French President Emmanuel Macron hosts the One Planet Summit, a gathering of up to 50 state leaders in Paris.
The event, on 12 December, is meant to accelerate the fight against climate change by mobilising stakeholders in the finance sector. The main topic will be innovation in public and private finance, with a particular focus on boosting private finance.
Subjects to be debated include ways to encourage the financial sector to better account for climate in its long-term planning, and to make investment in growth and development compatible with the 2°C global warming limit laid out in the Paris Agreement.
Christiane Averbeck, executive director of Climate Alliance Germany, said at an NGO press briefing: “It’s not about single little ’greening projects‘ in the finance sector, it’s about the redirection of large financial flows”.
Private climate finance – caught between pledges and reality
NGOs expect the governments, banks, and businesses attending the summit, to make many new pledges on climate change. Eight European firms, including SAP Germany, have already announced a 50 million euro contribution to a new fund to help cope with global warming.
German industry association Foundation 2° has initiated a declaration by 54 businesses, including Adidas, the Otto Group, Allianz, Unilever, UC Rusal, and Michelin (all 54 employ 1.9 million people and have a global turnover of 676 billion euros), calling for the phase-out of fossil fuel subsidies by 2025 and the introduction of a carbon price.
They pledge to tackle climate change and abide by the targets of the Paris Agreement “proactively and collectively” within their own business activities and policies, including by using additional instruments, such as internal CO2 prices. “Those who set the correct course now and actively advance the current modernisation process will be those who profit from it”, commented Sabine Nallinger, managing director of Foundation 2°.
However, critics say that several of these corporate promises are not actually being kept. A new study conducted by a group of NGOs on the involvement of banks and institutional investors in the coal sector worldwide shows that Germany ranks tenth in the list of institutional investors holding over 1 billion US dollars in shares and bonds of coal plant developers (2% of total institutional investment; the US accounts for 37%, and the UK for 5%).
German insurance company Allianz, a signatory to the Foundation 2° declaration and a member of the Institutional Investors Group on Climate Change (IIGCC), is among the 30 biggest investors in shares of coal companies. Although Allianz promised to divest from coal in 2015, this only affects its involvement in companies that base over 30 percent of their power generation or revenues on coal, meaning the insurance company can still invest in about half of the top coal plant developers, the NGOs say.
Greening finance: What needs to change, from a banker’s view
The bankers involved in ’greening’ finance in Germany are trying to resolve the problems by using the so-called ESG (environmental, social, governance) criteria. “We’ll only be successful if every manager and credit advisor considers ESG aspects in their everyday decision making – besides the profitability aspects”, Michael Schmidt, head of asset servicing and alternative investments at DEKA Investment, said.
Financial regulatory bodies, such as the Federal Financial Supervisory Authority (BaFin) in Germany, are not yet asking questions about the ESG, and this needed to change, he added. There were also limits to ‘greening’ finance, he admitted. “We cannot just put sustainability aspects before returns. We have a financial responsibility towards those who have entrusted us with investing their money”, he told the Clean Energy Wire.
From Paris to Berlin
In Paris, President Macron will be joined by UN Secretary General Antonio Guterres and World Bank President Jim Yong Kim, as well as several other heads of state and government, plus Leonardo DiCaprio, Bill Gates, and Arnold Schwarzenegger. German Chancellor Angela Merkel will not be there. Environment Minister Barbara Hendricks, who represented Germany at the adoption of the Paris Agreement in 2015 and hosted COP23 in Bonn this year, will attend instead.
All in all, the big question is what Germany can take home from the Paris summit. “The hope is that Germany, which is rather conservative and protective when it comes to green finance, takes back some momentum from Paris”, Karsten Löffler, head of the Climate Finance Centre at the Frankfurt School of Finance and Management, said.