US rejection of sustainable finance offers Europe chance to step in - bank manager

The United States' retreat from sustainable finance under president Donald Trump offers Europe an opportunity to strengthen its position in the sector, which is still thriving in many parts of the world, the managing director of one of Germany's largest banks told business daily Handelsblatt.

Funds managed under the ESG (environmental, social, governance) sustainable finance criteria are facing strong headwinds, with several finance industry heavyweights pulling out of related initiatives. But this is driven more by broader international uncertainty than by compliance with the Trump administration’s stance, said Marcus Pratsch, manging director at DZ Bank, the central institution for around 700 cooperative banks.

The wars in Ukraine and Gaza, as well as US tariff policies, are shifting investor priorities, Pratsch said. At the same time, tight reporting standards and other EU regulation have also throttled sustainable investments there, he added. Still, the market has consolidated in recent years and is unlikely to disappear as companies around the world, including in the US, continue to invest in green energy and other sustainability measures.

Measured by the volume of new issues, the euro is already the most widely used currency for sustainable bonds, accounting for just under 40 percent. Demand from Asian and other international investors is also growing, with Europe seen as a relatively stable investment destination. “Green finance at least offers a chance that the euro gains ground in the ranking of global currencies,” Pratsch added.

The EU has eased parts of its ESG regulation in response, which Pratsch called a “recalibration” that could make debates on balancing sustainability and profitability “more fact-oriented”.

“The EU has recognised that you must not let bureaucracy grow wild but that you need to simplify topics to make them manageable for companies,” Pratsch added.

A recent analysis by German NGO Finance Watch (Finanzwende) found that EU rules had led many investment funds to drop sustainability claims from their products if they could not meet requirements, rather than reshaping portfolios to become greener. Against the backdrop of US pressure, leading German finance companies have also begun reviewing their sustainability strategies.