Sustainable finance describes the consideration of sustainability aspects by private and public actors in their decisions. Sustainable finance thus concerns budgetary, financial, industrial and economic policy as well as sustainability, nature conservation and climate policy - a cross-cutting topic.
The need to respond to climate change and slow down the extinction of species requires comprehensive restructuring towards greenhouse gas neutrality and a sustainable economy. Sustainable Finance has a key role to play in the huge task of financing this socio-ecological transformation.
Economic structures and related production and consumption patterns will change fundamentally in the context of the socio-ecological transformation. Finance has a central leverage function as a provider of capital in the transformation of the real economy, as it can, for example, provide companies with financial capital more easily and more cheaply. In order to fulfill this function, there is a need for science-oriented, common standards, corresponding sustainability definitions and transparency. Based on these needs, Germanwatch works in the field of sustainable finance on German, European and international sustainable finance strategies and accompanies these political and economic processes as a civil society environmental and development organisation.
Germany ▾Germany ▴
Sustainable Finance Advisory Council
Germanwatch's Political Director Christoph Bals was a member of the first Sustainable Finance Advisory Council - a body of practitioners from the financial and real economy, civil society and academia that advises the German government on its Sustainable Finance Strategy. Through advocacy work, Germanwatch is working to ensure that the recommendations of the Advisory Council's final report are implemented in the current legislative period.
German Sustainable Finance Strategy
The last German government developed a German Sustainable Finance Strategy. Germanwatch has critically accompanied this process and advocates for the revision and coherent implementation of this strategy in the current legislative period as announced in the coalition agreement. The basis for this should be the recommendations of the Sustainable Finance Advisory Council.
Europe ▾Europe ▴
Reporting and disclosure requirements are important to achieve the leverage and steering effect of Sustainable Finance. The Corporate Sustainability Reporting Directive (CSRD), which is crucial for this at European level, is currently being revised. Through advocacy work at the political level and in discussions with companies and business representatives, Germanwatch is pushing for an effective and efficient CSRD revision. For example, in cooperation with the Alliance for Corporate Transparency, Germanwatch has highlighted and illustrated the importance and background of the issue of corporate responsibility and disclosure obligations in 2021 through a monthly briefing series.
Since the beginning of the process, Germanwatch has accompanied the development around the EU taxonomy through statements, comments, networking and advocacy work. The aim is to establish an effective, science-based instrument as a central element of the European Sustainable Finance Strategy. In its work at the European level, Germanwatch focuses on critically accompanying the positioning of the German government in the relevant European processes.
International ▾International ▴
Sustainable Finance G7 and G20 processes
Germanwatch also advocates for effective and common regulations in the field of sustainable finance at the international level. Part of this is the critical monitoring and advocacy work on G20 and G7 processes. As a basis for this, Germanwatch examines and compares the state of implementation of sustainable finance regulation in the G20. Germanwatch specifically accompanies the German G7 Presidency through publications and advocacy work.
A ‘race to the top’ or global crawl? Despite global climate negotiations at COP27 and the G20 inching far too slowly towards the financial transformations we need to tackle climate change, country-level progress is being made. A common framework would help track that progress.
One of the three main goals of the Paris Agreement is to ‘make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’, as stated in Article 2.1c. This long-term goal recognises that, complementary to an increase in finance that supports climate action, there needs to be redirection of finance, both public and private, that locks countries into a future of low emissions and higher resilience. Given that Article 2.1c has yet to be fully operationalised, this case study examines the progress towards implementing it in Germany. It is a first attempt to provide a comprehensive analysis framework for the implementation of Article 2.1c.
At the forthcoming G7 Ministerials this week and next, Germany should push for stronger joint efforts to exit international fossil fuel financing. Considering the latest IPCC findings and the urgent need to stop investment in coal, oil and gas, the financial activities of public finance institutions (PFIs) play an important role to achieve the goals of the Paris Agreement. This paper analyses the alignment of German and Korean PFIs’ climate and sector strategies with the Paris Agreement and makes recommendations on how their strategies can align with a 1.5°C goal.
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