Green and Sustainable Finance Cluster_ Grüneburgpark Frankfurt

Green and Sustainable Finance Cluster Germany

Strengthening efforts for a sustainable future in the Financial Centre Frankfurt

A strong and responsibly acting financial sector is of utmost importance to a sustainable future – just filling the forecast gap in the level of emissions avoidance necessary for Germany to meet international obligations by 2050 requires €530 bn in investments alone, as a report published by the Green and Sustainable Finance Cluster Germany (GSFCG) points out. And with regards to the high level of financing required for a transformation to a green and sustainable economy, efficient strategies are needed, including viable and innovative support from the financial industry. However, considering the complexity of global economic processes, financial institutions, investor groups, politicians and the public must be part of the discussion to account for the various interests of all stakeholders. The Green and Sustainable Finance Cluster Germany (GSFCG) facilitates this undertaking in the Financial Centre Frankfurt by establishing a network to bring together various stakeholders, and hence, mobilise synergies that shape the transformation.

GSFCG Baseline Report –  mainstreaming of sustainable finance

While that transition poses some challenges, it also bears plenty of chances, which both have to be understood to move forward. Therefore, GSFCG conducted an empirical market survey among 27 financial institutions, to:

  • gain a better understanding of the degree to which financial institutions are actively engaged in green and sustainable finance in the German market,
  • of which importance it is to financial firms and
  • current barriers to a vast integration into the mainstream of the financial services industry

Status quo – how active are financial institutions in Germany?

The report indicates that the German financial industry is responsive to the demands made by clients, civil society and regulators and thus, recognises the importance of sustainability. They have implemented wide-ranging activities, some of which are product-based while others relate to internal core business. For example:

  • All respondents report on sustainability
  • 86% of participants discuss sustainability at the executive board level
  • 70% have an independent team that is responsible for sustainability
  • Almost 50% of respondents already integrate sustainable investment strategies into conventional investment fund products
  • For over 65% of the respondents, sustainable products account for 1-20% of the total portfolio

What are drivers and barriers to the implementation of sustainable finance?

The GSFCG report finds that interest in sustainable financial products and the lack thereof functions both as a driver and a barrier: While institutional investors’ demand could be understood as an indicator for a long-term trend positively affecting other business areas, the perceived moderate demand by retail investors is seen as a barrier to Sustainable Finance reaching the mainstream. However, the moderate demand by retail investors may be partially attributed to a lack of product offerings. The same applies to policy and legal framework. Current regulation lacks a uniform sustainable finance taxonomy to serve as a reference base, which hinders financial institutions to act accordingly on the market. However, policy changes, such as a mandatory assessment of a financial products climate risks, are understood to be a driving force behind the integration of sustainable finance into the financial industry.

Recent actions by the European Commission indicate that there is no doubt in that additional regulation regarding Sustainable Finance is to come – it is rather a matter of what changes in regulation are to come. Therefore, members of the financial community are engaging in discussions of how legislation could be amended to foster progress in the transformation, and the GSFCG is no exception – two representatives of the cluster are part of the Technical Expert Group (TEG) set up by the EU High-Level Expert Group on Sustainable Finance to make recommendations on how to structure proposed legislation.

The report finds that the German financial industry has made progress towards a future sustainable and green economy. Integrating green and sustainable strategies into financial services can foster economic growth, which allows the German financial sector to secure and extend its role in the global economic system. The GSFCG gives a collective voice to that sector, allows for the mobilisation of even more financial actors and is an essential part of climate action in the Financial Centre Frankfurt.

Find more information on the full report here.