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
In summer 2022, the second Sustainable Finance Advisory Council - a multi-stakeholder body consisting of practitioners from the financial and real economy, civil society and academia - convened for its inaugural meeting. Appointed for the current legislative period, the "Sustainable Finance Advisory Council 2.0" will advise the current federal government, among other things, on the revision and further development of the first German Sustainable Finance Strategy.
In this context, Germanwatch participates in the advisory board's work as an observer and is active in several working groups of the advisory board.
Germanwatch's political director Christoph Bals was already a voting member of the first Sustainable Finance Advisory Council, which, with its recommendations from the final report, developed important groundwork for Germany's sustainable finance location.
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 first Sustainable Finance Advisory Council.
Europe ▾Europe ▴
Reporting and disclosure obligations for companies and financial market actors are a central building block for achieving sustainable finance's leverage and steering effect. In addition to disclosure under the EU Taxonomy and the Sustainable Finance Reporting Directive (SFRD), the Corporate Sustainability Reporting Directive (CSRD) is essential for effective sustainability reporting at a European level. The CSRD is currently being drafted and implemented. Through advocacy at the political level and in discussions with companies and business representatives, Germanwatch supports effective and efficient disclosure of sustainability data.
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.
Sustainable Finance and Deforestation-Free Supply Chains
The Germanwatch Sustainable Finance Team, in cooperation with Climate & Company and other Germanwatch teams, is engaged in a project to reduce the financing of global deforestation
The emerging polycrisis is challenging governments and institutions around the world. Especially countries in the Global South lack the financial capacity to address the current challenges and simultaneously prepare their nations for the impacts of climate change. The existing international financial architecture has so far been unable to provide the necessary financial resources.There are three major reform proposals that address different institutions within the international financial architecture. This primer introduces the proposals presented and provides an overview of the main institutions and actors involved in the process in Germany.
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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