Written by 16:07 Financial Centre, Sustainable Finance

Banks implementation of climate protection

In the context of Germany facing the opportunities and challenges as a sustainable finance location, Karsten Löffler and Thomas Mog will guide you through the work of Net Zero’s Banking Alliance and the Green and Sustainable Finance Cluster.

Important banks are commiting themselves to the Paris Climate Agreement in the climate protection self-commitment of the financial sector. In doing so, banks are positioning themselves as the key factor for competitiveness and securing the future of Germany as a business location. In the Net Zero Banking Alliance Germany (NZBAG), banks are working pre-competitively on the technical implementation of the voluntary commitment. Organizator of the project, is Frankfurt’s based, Green and Sustainable Finance Cluster. In the following interview, Karsten Löffler and Thomas Mog will be giving their insights into the work of the NZBAG and the cluster.

Mr. Löffler, Mr. Mog: in the Net Zero Banking Alliance Germany, methods are being developed to measure the climate impact of credit and investment portfolios and to manage them in line with national and international climate goals. What does the work of the NZBAG look like in conrete terms?

Karsten Löffler

Karsten Löffler: Banks are facing the challenge of reflecting the climate transformation, which must be thought of holistically, in individual credit decisions. This requires a systematic integration of climate aspects in the bank, from strategic orientation to risk management to dialogue with customers. In the work of the NZBAG, this overall picture is broken down into its individual parts. Methodical and technical solutions are developed. In July, for example, the report Lending to a climate neutral Germany by 2045 was published on the topic of climate-friendly management of the loan portfolio. Other working groups have to deal with qualification and education requirements in the field of sustainable finance, as well as a systematic approach to the real economy on climate issues.

Thomas Mog

Thomas Mog: There is still a long way to go between the goals of the Paris Agreement and the necessary transformation of the economy and society. In particular, the implementation of climate goals in business decisions has not been systematically and widely tested to date. This also applies to the banking sector. The goal of our work at the NZBAG is to make the banking sector fit for Paris. For me, this means understanding where the banks’ customers are in the transformation process and what support is needed from the banks to become Paris-compatible.

This requires methods, skills, data, indicators, targets and comparable reporting. Since these challenges affect all banks and the foundations still need to be laid in many areas, we have created a pre-competitive framework and are now working on it together.

More and more financial institutions around the world are committing in meeting the Paris climate targets. How do the developments and projects in other regions look like?

Thomas Mog: The Race to Zero has already begun. We are seeing increasing momentum in the banking sector to commit to the Paris climate goals and the United Nations Sustainable Development Goals. In preparation for the climate negotiations in Glasgow, the Glasgow Financial Services Alliance (GFAZ) has formed to promote the 1.5 degree climate target globally. Since the election of Joe Biden as US President, US banks have also been among the drivers. With its technical focus on implementation, NZBAG is in the top group internationally, thus making an important contribution to positioning Germany – as a leading location for sustainable finance.

Karsten Löffler: Other parts of the financial system can serve as a model for the banking sector. The work of the Net Zero Asset Owner Alliance in particular, is a good example of ambition and practical, measurable implementation. Over 40 institutional investors worldwide have joined forces to develop common standards for managing investment portfolios in line with climate goals. However, it is also apparent that this steering process cannot be developed and introduced overnight and that the conversion of portfolios takes time. Certainly, something similar will be observed in the German banking sector.

What opportunities and challenges does Germany face as a location for sustainable finance?

Karsten Löffler: A successful economy needs a sustainable and thus future-proof financial system that actively shapes the transformation in the climate crisis, digitalisation and globalisation together with the companies. This requires a systematic approach and concrete solutions as proposed by the Sustainable Finance Advisory Board. With the NZBAG, the Green and Sustainable Finance Cluster Germany shows how it can be done. A central body that actively supports change in finance and involves all relevant stakeholders in finding solutions is my ideal. At the same time, in my view, it is eminently important that politics creates goal-oriented framework conditions and guard rails, accompanied by impulses from academia and civil society. The dialogue between the financial sector and the real economy must also be strengthened.

Thomas Mog: The banks, in return, must systematically operationalise sustainable finance. This includes for example, portfolio management in line with sustainability goals, integrating sustainability aspects into risk management, and seeking active dialogue with customers. After all, the changes towards sustainable development will have to be implemented to a large extent by the real economy.

Karsten Löffler: The challenge for Germany as a location for sustainable finance is to activate these strands of action in a coordinated, implementation-oriented and ambitious manner, or to concentrate resources on them, and especially to do so in a sufficient extent. In the Green and Sustainable Finance Cluster Germany, we are developing solutions to strengthen Germany as a sustainable finance location in the best way possible.

Of the financial institutions organised in the Net Zero Banking Alliance Germany, some are also members of Frankfurt Main Finance. What role does the financial centre Frankfurt play for the Net Zero Banking Alliance Germany?

Karsten Löffler: The operating banks out of Frankfurt, are setting important implementation impulses for climate protection in the NZBAG – with a reach that goes beyond Frankfurt and Germany.

Is there still the possibility of joining the NZBAG?

Thomas Mog: The NZBAG is open to new members. We are looking forward in increasing our reach in the German banking sector – even further. Interested institutions can approach us at any time. On the one hand they benefit from the content already developed, and on the other hand they can still help to shape it in many ways. This would save them the effort of developing individual solutions.

Seven banks have joined forces in the Net Zero Banking Alliance Germany. The participating financial institutions BNP Paribas, Commerzbank, Deutsche Bank, DKB, DZ Bank, ING and LBBW are committed to sustainable finance and have pledged to align their portfolios with the Paris climate goals. The Green and Sustainable Finance Cluster Germany supports the Net Zero Banking Alliance Germany in developing pre-competitive solutions and governance approaches for climate neutral investment and loan portfolios.

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