Written by 12:11 Financial Centre, International, Sustainable Finance, TOP-NEWS

Lending to a climate neutral Germany 2045

Banks are jointly developing methods in Germany’s – Net Zero Banking Alliance – through loan portfolios in the financial centre of Frankfurt.
First conceivable results are at hand.

Since the beginning of 2021, seven banks have been working on technical and methodological implementations of climate protection through loan portfolios, under Net Zero Banking Alliance Germany’s (NZBAG) umbrella. Participating financial institutions such as the BNP Paribas, Commerzbank, Deutsche Bank, DKB, DZ Bank, ING and LBBW are cooperating pre-competitively in managing their portfolios in line with the Paris climate goals. From 2023 onwards, corresponding advancement ought to be created to comparable transparency.

In July, NZBAG presented their earliest results for “Lending to a climate neutral Germany by 2045”The Green and Sustainable Finance Cluster is going to host this project at the Financial Centre, here in Frankfurt.

 

These are the goals of the Net Zero Banking Alliance Germany
  • Development of technical solutions: to advance necessary methods to measure the climate impact of loan portfolios and manage them in line with (inter) national climate targets. Methodological freedom is given in the underlying goals, which are in line with the requirements of climate science.
  • Systematic integration of climate issues in banks: to accompany the journey from central bank management to data management, as well as training measures and incentive structures to systematic customer dialogue with the real economy.
  • Establishment of a reporting framework: to be defined in a binding manner by the end of 2022, within reports of participating institutions report on their progress in climate protection.
 
How the alignment of portfolios can be made measurable in line with
– The Paris Agreement – 

In NZBAG’s first months of work and focus on measuring sole compliance of loan portfolios within Paris climate goals, prerequisites and necessary decisions where discussed, in order to effectively manage loan portfolios in a more forwarding way. Three important aspects in particular stand out:

  • The choice of climate scenario: which influences transformation paths of credit portfolios. Minimum requirements for climate scenarios for this purpose are therefore proposed by the NZBAG.
  • The portfolio management model: where banks can choose between different  models, including CO2 budgets, technology pathways, temperature scores and shadow pricing. NZBAG primarily recommends the most commonly used, such as CO2 budgets and technology pathways, since they are closely related to climate science and most useful for discussing decarbonisation strategies with the real economy.
  • Definition of a single climate metric for portfolios: that can be used in a method-integrated way for simplification. In this context, the NZBAG proposes the Climate Action Portfolio Indicator (CAPI) as an overarching portfolio indicator, which should make different measurement approaches comparabless.

The objectives under development by the NZBAG will help to facilitate harmonisation and standardisation in the assessment, analysis of climate risks within the industry and will be beneficial in steering our portfolio.

Chris Jaques, Deutsche Bank Tweet

Lending to a climate neutral Germany by 2045

More detailed insights and results of NZBAG's first five months work are provided by the current discussion paper. Contributions, questions and exchanges are always welcome.
Shaping the exchange with the real economy

In NZBAG further course, (continuing) education, governance structures, data bases and systematic customer dialog with the real economy are to be increasingly discussed. In particular, interactions with the real economy will be expanded – an aspect that is often neglected in sustainable finance discussions. The NZBAG will work out what basics a customer dialogue needs to include so that banks can understand where their customers stand in the transformation and enable forward-looking climate-integrating advice. This also includes needed skills for customer advisors, among others, to conduct this expanded dialogue.

Kristina Jeromin, Managing Director of Germany’s Green and Sustainable Finance Cluster, sees the work of NZBAG as a competitive advantage for Frankfurt as a financial center:

The NCBAG and the cluster enable implementation-focused cooperation between banks, German SMEs, civil society and academia. With the declared goal of developing concrete solutions, it is the central place of implementation to position Germany with Frankfurt as a leading location for Sustainable Finance.

Kristina Jeromin, Green and Sustainable Finance Cluster Germany Tweet
Interview with Karsten Löffler and Thomas Mog 

By the end of 2022, financial institutions organised in the Net Zero Banking Alliance Germany develop pre-competitive principles on standardised criteria, methods and processes to support climate-friendly portfolio management on the one hand and customer advisory services on the other. Karsten Löffler, Managing Director of the Green and Sustainable Finance Cluster Germany, and Thomas Mog, Project Manager of the Net Zero Banking Alliance Germany, are giving insights into the project and their current developments, as well as the significance for the future of Germany – as a sustainable finance location.

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