‘Unnecessary bureaucracy’ hampering climate change efforts

Effective green investment needs to allow for more risk

Worldwide regulatory agencies need to harmonise disclosure standards for sustainable finance to reduce unnecessary bureaucracy and maximise capital flows into investments countering climate change. That was a principal message from Sabine Mauderer, board member of the German Bundesbank, and Elizabeth McCaul, member of the supervisory board at the European Central Bank, at an OMFIF sustainable finance conference in Frankfurt.

The one-day seminar on 15 September – ‘International standards for sustainable finance: Europe’s place in the vanguard’ – was supported by a range of institutions, including technology consultancy Capco, Frankfurt Main Finance and the Luxembourg embassy in Berlin. It was attended by delegates and speakers from a dozen countries, including the European Commission, United Nations, European Investment Bank and Organisation for Economic Co-operation and Development.

Nicolas Mackel, chief executive of Luxembourg for Finance, the Grand Duchy’s financial promotion agency, summed up one prevalent mood of the meeting. The bitter consequences of the war in Ukraine – high inflation, recession worries and drawbacks of undue energy reliance on Russia – coincided, he said, with considerable opportunities for renewal and innovation.

Mauderer is due to take over in 2024 as chair of the Network for Greening the Financial System, a body of more than 100 central banks and regulators based in Paris. The Bundesbank is working closely with the International Sustainability Standards Board, whose secretariat was set up in Frankfurt last year.

Mauderer pointed to confusion and inefficiency that could result from a proliferation of worldwide taxonomy schemes for guiding sustainable investments. And she pledged to help build a regulatory system that was diverse enough to handle the complexity of sustainable finance initiatives and the multiplicity of organisations promoting them, yet sufficiently simple to improve transparency and enforceability.

Even though the Bundesbank has no formal mandate for investment promotion, Mauderer emphasised that Europe’s often fragmented financial landscape could lead to business migrating to the US or Asia, where opportunities for scaled-up investment are often greater.

Niall Bohan, director for asset, debt and financial risk management at the European Commission, underlined the opportunities from the €750bn Next Generation EU fund, which is floating international bonds up to 2026 to promote industrial renewal and green-friendly projects across the European Union.

A common theme among the 25 speakers was the need to achieve an appropriate framework for public and private investors and financial institutions to channel private investments into the vast opportunities for sustainable finance.

Philipp Steinberg, director general for economic policy at Germany’s ministry for economics and energy, said he was speaking to foreign private equity firms and investment organisations about opportunities in Germany. This included the government’s campaign to build more renewable energy capacity, including power networks, as well as new liquefied natural gas terminals in northern Germany. Referring to remarks in the Bundestag by Franz Münterfering in 2005, Steinberg said the days when a former chairman of the (then and now) governing Social Democratic party had labelled foreign financial investors in Germany as ‘Heuschrecken’ (locusts) were now firmly in the past.

The nature of green investment reporting and requirements means that a green label on an investment is suitable for sovereign bond issuers and large companies as they are able to satisfy the criteria. But are investors taking enough risks in green investment? A representative from Franklin Templeton pointed out that we need to be inventing and investing in the future, and suggested this can only happen with blended finance. Effective green investment needs to allow for more risk.

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