Earning money while protecting the climate – sounds good, but it’s not that easy. The EU wants to label investments. But it shouldn’t get any easier for investors to find “green” products.
“Investing responsibly”, “Shaping the world with money”, “Saving with a clear conscience” – banks and fund companies are eagerly promoting the green transition.
The financial sector can no longer ignore the issue of climate protection, more and more investors are paying attention to criteria such as the environment and social issues. The problem: It is often not immediately apparent how “sustainable” such advertised products actually are. The current debate about a move by the EU Commission shows how difficult the topic is.
EU: nuclear and gas climate-friendly
This stipulates that investments in new gas-fired power plants can also be classified as climate-friendly on a transitional basis, especially at Germany’s request. In addition, investments in new nuclear power plants – planned in France, among others – should be classified as “green” under certain conditions. Critics fear that this will damage the EU’s so-called climate taxonomy. This classification of economic activities is intended to channel more money into sustainable technologies and companies and thus contribute significantly to Europe’s climate neutrality by 2050.
Strong criticism of plans
“The German banking industry basically supports the idea of the EU taxonomy,” writes the umbrella organization of the five major banking associations in Germany. «The underlying criteria must be comprehensible, practicable and derived on the basis of scientific standards. This is the only way to achieve a credible and accepted taxonomy. “
That is exactly the crux of the matter. The planned consideration of nuclear power and natural gas leads the “instrument originally intended as an accelerator of sustainable transformation to absurdity”, criticizes the GLS Bank, for example, which describes itself as the largest and oldest socio-ecological bank in Germany.
“After no social criteria were taken into account in the taxonomy, the inclusion of nuclear and gas energy destroys any trust that environmentally conscious investors have in this seal of approval for sustainable investments,” says GLS boss Thomas Jorberg. “It is a signal of arbitrariness to allow non-sustainable technologies for a sustainability label.”
Ingo Speich, Head of Sustainability at Dekabank, also sees the development with concern: “The fact that industrial policy is also being made renders the taxonomy less credible.” However, the Brussels regulations with their focus on climate change and climate protection are currently “far too narrow to attract attention on the broad capital market,” says Speich. “That will change because it will be more broadly defined in the next few years.”
Speicher expects an even greater boost for “green” financial investments in the short term from guidelines that will take effect from August 2nd of this year: From then on, advisors who want to sell funds, ETFs, bonds and the like are available obliged to ask customers about their preferences when it comes to sustainability.
Demand for sustainable investments
Surveys show: the potential is great. In a survey carried out at the beginning of December on behalf of the Association of German Banks (BdB), 67 percent of investors stated that it was important or very important to them to invest their money in socially and environmentally compatible projects. But only about four out of ten investors (39 percent) have so far invested in corresponding products according to their own statements.
The Forum Sustainable Investments (FNG) puts the total amount of sustainable investments in Germany as of December 31, 2020 at 335.3 billion euros – an increase of 25 percent over the previous year. The share of sustainable funds in the entire German market is therefore still comparatively low at 6.4 percent.
Deka expert Speich, who has long been demanding more commitment from companies to the environment, social issues and good corporate governance (ESG for short), emphasizes: “The capital market must and will continue to advance the issue of sustainability. Regulation is becoming stricter and more specific. In addition, we can already see that investors are withdrawing from companies in certain industries – tobacco, coal, oil. These developments will ultimately lead to a market standard. “
Taxonomy could set a minimum standard
Christian Klein, who researches sustainable finance as a professor at the University of Kassel, is convinced: “Taxonomy has the potential to actually set a minimum standard.” The idea of the classification is ingenious: “To be clarified, if it says sustainability, what is in it?” Klein emphasizes: “If nuclear power is included in the taxonomy, that doesn’t mean that every sustainable fund also includes nuclear power.”
However, the European dispute over the recognition of nuclear power and natural gas as climate-friendly shows how flexible the term “sustainability” is. “In parlance, there are different concepts for the sometimes ambiguous term of sustainability”, stated the financial supervisory authority Bafin earlier and warned consumers: “Be aware of this.”
It is extremely unlikely that the move by the EU Commission can still be stopped. To do this, at least 20 states would have to come together, representing at least 65 percent of the total EU population – or at least 353 members of the EU Parliament.
EU taxonomy regardless of the market standard – investors who want to avoid “greenwashing” in “green” investments will in all probability have to take a closer look themselves in the future as well.