Service Navigation

Sustainable finance

Sustainable finance

Climate change, migration, progressing digitalisation and establishment of social standards: these current global challenges require sustainable development from politics, society and business. This upcoming transformation process will also have a strong impact on capital markets. Which aspects are key for sustainable finance? What type of framework and structures are needed? And which initiatives are driving the subject?

What is sustainable finance about?

Current global developments such as climate change, but also migration, progressing digitalisation and the establishment of social standards present politics, society and business with great challenges. High funding requirements will be needed globally for the sustainable reorganisation of whole branches of industry, the achievement of the 2-degree goal and the realisation of the United Nations’ Sustainable Development Goals (SDGs) as well as for financial compensation of damage as a result of climate change.

Even though there is a growing awareness of new opportunities and risks this change involves, and sustainable finance is increasingly gaining attention in the public eye, the economic implementation on the market is still a significant way behind this and needs to catch up. In order to take account of these changes in the near term, there will have to be a rethink in the financial industry and concrete structures will need to be established – the fundamental inclusion of sustainability criteria in the entire financial sector is essential. This specifically means, for example, that investment strategies that previously led a niche existence, such as medium- to long-term impact investing, need to increasingly reach the mainstream of international capital markets.

Ultimately, it is a matter of ensuring stability and sustainability of financial markets by taking the impact of business activities, the consideration of long-term opportunities and risks in the core business and sustainability criteria into account as the foundation of capital expenditure and investment decisions. Only in such an environment the financial services sector can fully live up to its responsibility in financing global transformation processes.

Role as an infrastructure provider

As an infrastructure provider, Deutsche Börse not only aims to provide markets but actively shapes them as well. It does this in awareness of its public service mandate and with the aim of establishing transparent and secure structures of integrity. It is precisely in this area that a stock exchange makes its contribution to society and fulfils its responsibility of sustainable development. This is because sustainable organisation of the financial industry is closely connected with future economic and social development and maintaining Germany’s attractiveness as an economic centre.

 

Financial markets will only become sustainable if key players join forces. This is why Deutsche Börse has launched two sustainability initiatives in close cooperation with other stakeholders.

Green and Sustainable Finance Cluster Germany

The “Green and Sustainable Finance Cluster Germany” is a sustainability initiative for the German financial market that was initiated in April 2018. It is a merger of the Accelerating Sustainable Finance initiative of Deutsche Börse and the Green Finance Cluster Frankfurt of the Ministry of Economic Affairs for Hesse. The aim of the new cluster is to further promote sustainable development and its transformation process in the financial sector. In doing so, the cluster uses the consolidated financial market expertise to make financial market structures future-proof – both nationally and throughout Europe.

In its current baseline report, the Green and Sustainable Finance Cluster Germany has examined the status quo of sustainable financing in Germany. On this basis, the cluster has defined four action fields serving as a starting point for concrete projects.

At the European level, the cluster is actively involved in shaping the sustainable development process: it supports the implementation of the EU Commission’s sustainable finance action plan and is a member of its Technical Expert Group.

Kristina Jeromin, Head of Group Sustainability at Deutsche Börse Group, and Karsten Löffler, Co-Head Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance, manage the cluster’s business on equal terms.

The cluster is organised as an association. Current sponsors are BNP Paribas Germany, Commerzbank AG, DekaBank Deutsche Girozentrale, Deutsche Bank AG, Deutsche Börse AG, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Helaba, KfW Bankengruppe and Metzler Asset Management GmbH. The cluster’s headquarter is located at Frankfurt School of Finance & Management.

In 2017, Deutsche Börse, together with major players in the financial centre of Frankfurt, launched the former Accelerating Sustainable Finance initiative. In this connection, the participants signed the “Frankfurt Declaration”, a joint declaration of intent to build sustainable financial sector infrastructures.  The signatories of the Frankfurt Declaration support the new Green and Sustainable Finance Cluster Germany.

Hub for Sustainable Finance Germany

As of summer 2017, Deutsche Börse and the German Council for Sustainable Development founded the “Hub for Sustainable Finance Germany” (H4SF). The Hub is an open network comprising financial market players and other stakeholders contributing to developing a sustainable financial system in Germany. The focus is on aspects of regulation and market-oriented instruments as well as on criteria that promote sustainable development of the financial system.

For example, the Hub currently discusses key recommendations for developing and strengthening sustainable financial in Germany. These will form the basis for specific recommendations to the German federal government. They take into account key points from the interim report of the European Commission’s High-Level Expert Group on Sustainable Finance, the PRI Germany roadmap, the living document on Sustainable Finance by the German Council for Sustainable Development as well as the objective of the Sustainable Finance Cluster and the Financial Stability Board’s “Recommendations of the Task Force on Climate-related Financial Disclosures”.

Networks and partnerships

The topic of sustainable finance is gaining global importance with corresponding structures developing on the market. However, these structures can only be established together with all financial players. As regards our initiatives and their integration potential, we regularly engage in dialogue with our partners in business, society and politics – both on the national and international level. In addition to our collaboration with the German Council for Sustainable Development (Rat für nachhaltige Entwicklung, RNE), we are active as a member, and on the board, of econsense, the Forum for Sustainable Development of German Business. The exchange with other financial venues – for example, as part of the United Nations’ Sustainable Stock Exchanges (SEE) initiative, the Network of Financial Centres for Sustainability and the Sustainability Working Group of the World Federation of Exchanges (WFE) – also gives us important momentum to further advance sustainable finance.

Sustainable products and services

Currently, Deutsche Börse Group’s offering via its index subsidiary STOXX includes around 100 sustainability indices, e.g. the STOXX® ESG Leaders and STOXX® Low Carbon index families. The volume amounts to around €12.5 million and there are currently 2 ETFs: the FlexShares STOXX® Global ESG Impact index and the FlexShares STOXX® US ESG Impact index. We see it as our responsibility as a capital market organiser to further advance this topic in economic implementation.

The importance of ESG data

In connection with sustainable finance, ESG data (environmental, social and governance data) and its publication are of great significance. Core business-based ESG data allows a more holistic and above all forward-looking measurement of company value and is indispensable for extended financial key figures. This is because climate and environmental risks, social factors and aspects of corporate governance will play an essential role in risk assessment for the financial sector.

The information provided as part of companies’ reporting serves investors, asset owners and asset managers, for example, to be able to better identify opportunities and risks associated with their investment decisions and make sound decisions. By collecting ESG data, companies can identify risks along their value chain and manage these accordingly in order to ensure medium and long-term business success.

And last but not least, more transparency about possible cross-sector risks provides greater stability on capital markets. According to the international expert committee’s Peer Review Report, which evaluates the implementation of the German sustainability strategy every four years, the financial industry’s contribution has, however, so far been underdeveloped. Deutsche Börse supports the initiative through the Task Force on Climate-related Financial Disclosures (TCFD) as an important stimulus to more intensively discuss these risks and effects as financially relevant variables.