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Kristina Jeromin: “Sustainable finance is still a niche topic”

02 Dec 2019

Kristina Jeromin: “Sustainable finance is still a niche topic”

Ms. Jeromin, how far has Deutsche Börse come regarding the topic of sustainability since last year?

As a provider of financial products and market infrastructure, we have further expanded our own sustainable finance and product infrastructure. By now, we are offering more than 100 ESG indices including, for example, a specifically designed Low Carbon index family based on data from CDP, the Carbon Disclosure Project. We have introduced two Eurex futures there at the beginning of this year. Furthermore, we have informed companies listed how they can include sustainability aspects in their capital markets communication. We continue to see a communications gap here. Everybody is generally agreed that sustainable investment and overall sustainability on the financial markets are of great importance. However, the companies listed are often still on their way to defining what this means for them and how this will be reflected in their reporting. Investors, on the other hand, are in part still placing too little focus on requesting and evaluating such information. This is where Deutsche Börse in its role as a dialogue platform has an important function to enhance this discourse. The aim is to establish sustainability as an essential component of the respective core business. This is essential for the future sustainability of any business model and holds true both for financial institutions and companies in the real economy. 

The industrial group Bosch intends to be climate-neutral in its worldwide activities as of 2020. Which goals is Deutsche Börse Group setting for itself regarding the topic of sustainability?

We have a so-called environmental performance evaluation showing the total carbon footprint of our international locations. It is basically made up of the energy we are using in the buildings and from air travel. Group-wide it comes to about 12,000 tons of CO2. Naturally, we are continually trying to further reduce this consumption. In the future, we are planning to become carbon-neutral by additionally buying specific certificates that are up to the United Nations’ gold standard. All these aspects are important and the right thing to do, however, we see greater leverage in our engagement in the entire financial services industry.

How about a benchmark index based on ESG criteria or SDG standards?

Surely it is important to establish benchmarks, but in order to do that, one needs precise standards which the market can work with. Sustainable Finance is still a minority issue. In comparison to the mainstream market, we have no clearly standardised data records that can serve as a basis for corresponding investment decisions, the granting of loans etc. This is why Deutsche Börse is supporting the EU action plan on Sustainable Finance and, in particular, the development of a common understanding of sustainability, especially taxonomy. We should start now to transfer these first definitions to the market and work with them, this is at the moment simply the lowest common denominator. 

The word “green” has many varying definitions. Which solution might there be to finding a uniform definition?

Indeed, up to now, there is no standard. It is important to consider the various interests and determine a definition that the majority can identify with; the truth is that the market is diverse. For example, regarding the topic of SDG investing, impact investing is still being mixed up with the implementation of sustainability criteria in risk yield. These are distinctions that must be made understood. In this context, standardisation and transparency play an important role.

What progress have you made with your own initiatives, such as “Hub for Sustainable Finance Germany” and “Accelerating Sustainable Finance”?

Last year, we founded the Green and Sustainable Finance Cluster Germany in cooperation with the Government of the Federal State of Hessen. This was an important step; as a result, we were able to get the backing of various financial players, both as sponsors and simply as supporters. The goal is to use the financial market expertise around Sustainable Finance even more efficiently based on a broader dialogue, and particularly to implement concrete approaches to make financial market structures future-ready. Existing sustainability initiatives, including the two initiatives you mentioned, have been integrated into the cluster. At the federal level, we also have the Sustainable Finance Advisory Board of the German Government, which I have been co-chairing since the middle of September. The creation of this advisory board was also something that the cluster intensively worked for. We cooperate very closely on this as well. 

Regarding the topic of Sustainable Finance, other countries are outranking Germany: what could a Sustainable Finance strategy look like?

The reason for our being behind is that we are unable to bring together discourses. What does the political framework have to do with economic value creation? And which roles do the respective players of an economic system have during such a transformation? Here we sometimes shy away from doing away with apparent barriers and to speak with one voice. That is a problem for the business location and will make us lose credibility in the long run. In addition, it does not only harm us, but also the EU. This is so because, in the end, we need to have a European concept if we wish to get ahead. Exchanging views is essential since homogeneous overall structures need to be developed. Here, the Member States are required to actively promote these topics in Brussels and to offer their strategies for discussion. There cannot be consensus at all times, but permanent discourse and the striving for an answer to these questions should be a must. And this is something even a German Government has to face up to.

How can the German Government be of help in these matters, and which incentives should it be setting?

For one, Federal policy has a signalling effect. Federal or public-sector investments are long-term investments. Sustainability should play a prominent role here as well. It will be important for the German Government to make adjustments across the financial market without interfering too much with market dynamics. It is of major importance to have an ambitious CO2 price that the market can use to initiate investments and to make risks transparent. The concept behind it must be broad and cover the whole market, all players and product classes. That may well come to be a competitive factor for Germany as a Sustainable Finance location. One can observe that the Sustainable Finance strategies of other European countries have a clear focus on specific player groups, product groups and market segments. If we managed – very late but nevertheless still in time – to place the topic in the way that I just described, then it could become a characteristic and a unique selling point of Germany’s Sustainable Finance strategy. However, until we reach that goal, there are still quite a few tasks ahead of us.

Sustainability plays an important role primarily for the younger generation. How could they be involved in such a Sustainable Finance strategy?

In general, one can see that millennials especially are very willing to invest sustainably. This applies particularly to specific performance-related investment such as impact investing and reaching specific SDGs. Today’s and tomorrow’s customers want to play a more important role here, but this is currently given too little consideration. 

What can the financial markets contribute to the proclaimed goal of the EU Commission to become climate-neutral by 2050? 

The financial industry is cross-sectoral and as such can definitely help the real economy make these transformations. On the one hand, there are enormous financial needs. And on the other hand, there is the risk management of the sector itself that has to ensure in the form that there is no loss in value of stranded assets. The financial sector is important – however, other players are, too. It is vital that, in Germany, we develop a deeper understanding of how strongly the real economy and finance are interwoven with one another and which opportunities in the real economy’s value creation could be triggered by finance. These potentials and this leverage must be used.

Which sustainable products can Deutsche Börse offer via its financial centre?

We do not need to invent ten new financial products; instead, we can look at the products that exist on the market and consider to what extent sustainability aspects can be included. In my opinion, this involves standards, transparency and middle- to long-term value considerations. This is the case because many risks will simply not be relevant today or tomorrow but in about three to five years. If, however, the time span under consideration does not include this, it will not be considered. We need a holistic approach to including these aspects in the risk management of the sector. As part of our function as an exchange – which is to create transparent, stable and fair capital markets – we need to point out that, without including these new and extra-financial aspects, we cannot fulfil this function in the same way as before.

How can more investors, including retail investors, be attracted, so that the topic of sustainability gains more importance?

With regard to retail customers, we have found out in a market survey that about 80 per cent would like to make sustainable investments but that less than 12 per cent have actually done so. This is also due to a lack of transparency. Sustainability is currently not a truly relevant topic when customers ask for their bank’s advice. All these aspects are addressed by the EU action plan. This is also a task of the Sustainable Finance Advisory Board of the Federal Republic of Germany that deals with exactly these topics – end customers, standard-setting and the education that’s needed.

This interview was first published in Börsen-Zeitung (in German) on 30 November 2019.

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Additional Information

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Group Sustainability

+49-(0) 69-2 11-1 42 26

+49-(0) 69-2 11-1 76 11

group-​sustainability@​deutsche-​boerse.com