Money for wind turbines, money for solar systems: if you want to use your savings to combat global warming, you should probably only invest in green companies – that’s what some investors probably believe. And they could be wrong. From an economic point of view, sometimes something else helps the climate more, said Sabine Mauderer from the Bundesbank, at the Munich Economic Debates from the Ifo Institute and South German newspaper. She is on the board of the central bank responsible for sustainability.
Instead of investing in companies that are already green, investors should also invest in companies with high CO₂ emissions, said Mauderer – if this capital then leads to the dirty companies becoming cleaner. “The biggest contribution is a euro that transforms an energy-intensive or high-emission company,” said Mauderer.
It’s not enough to “look at purely green projects”
Money would be well spent in an emission-free company, but it would not finance the transformation. Investors should therefore consider how much less emissions will result from their own investments. It is not enough to “look at purely green projects”.
The Bundesbank is investigating how, for example, floods or droughts affect inflation worldwide: If harvests fail, this can also make food more expensive in Germany. The central bank also keeps an eye on the risks of transformation. So when German companies restructure themselves to emit less CO₂. Because that doesn’t always have to work out; it can also cause loans to collapse. “Climate risks are financial risks,” said Mauderer.
Surveys by the Bundesbank suggest that more than two thirds of industrial companies are already investing in more efficient use of energy, reported Mauderer. But the costs of the transformation are still enormous: For Germany, the Kreditanstalt für Wiederaufbau (KfW) sees necessary investments amounting to many billions of euros per year in order to achieve climate neutrality. It is unclear whether there will be enough capital for this. Time is of the essence: the economy only has less than ten years left to successfully implement structural change in the face of increasing global warming, says the Bundesbank board member.
According to the Bundesbank’s calculations, where should the funds for the green transformation come from? Essentially it’s about private investments, said Mauderer. 90 percent would have to be privately financed.
She assumes that in the future companies will have to explain in more detail what changes the company plans to make in order to emit fewer emissions. In the UK, listed companies already have to provide detailed figures and plans on how they will achieve this so that an investor knows whether their money is being invested in a climate-friendly manner.
It is important to take society with you and maintain prosperity in Germany. That’s why investments must be made in particular in “prosperities of the past”, including companies with high emissions.