Dossier
Sustainability
Making sustainable finance work: developing a sustainable finance framework that works in practice.
The economic risks and costs associated with climate change are rising sharply. Against this backdrop, Europe is committed to achieving net zero emissions by 2050. Geopolitical developments are also increasing the pressure to reduce dependence on fossil fuels. The transition to a sustainable economy requires substantial investment, and banks have a central role to play in financing it. The Association therefore advocates practical and proportionate sustainable finance regulation at both European and national level that facilitates sustainable investment and effectively supports the transition to a sustainable economy.
Key points at a glance
- The transition to a sustainable economy and climate action are not ends in themselves.
- ESG regulation should help direct capital while improving risk management and transparency
- Financing the transition requires private capital
- Banks enable the transition by supporting companies in becoming more sustainable
- Effective regulation must also work in practice
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Where do we stand?
The role of banks in the transition
A complex ESG regulatory framework
A comprehensive regulatory framework is now in place, providing greater transparency, embedding sustainability risks into decision-making and helping to direct capital. Given the significant investment required, the financial sector has a central role to play. Implementation remains challenging, however. Uncertainty, high costs and complex regulation continue to hold back investment.
Seizing the opportunities of the transition
Achieving net zero is not simply a cost. On the contrary, future competitiveness depends on it. The goal is a net-zero, resource-efficient and competitive economy in which the transition strengthens growth, innovation and resilience. By adapting their business models at an early stage, companies can reduce cost risks, safeguard their market position and avoid misallocating capital.
The financial sector supports the transition
The financial sector is actively supporting the transition, particularly by financing the transformation of existing business models. At the same time, ESG regulation needs to be simplified and made more practical without calling its core instruments into question.
A stable policy framework is essential
Reliable conditions are needed, including stable climate targets and predictable carbon price signals. Frequent policy reversals only create costly uncertainty. Clear political communication is also needed that presents the transition as an economic opportunity. At the same time, accelerating investment requires greater mobilisation of private capital and the targeted use of public funding.
Making regulation more practical and improving data availability
In addition, Europe needs a more competitive business environment with less bureaucracy, faster approval processes and competitive energy prices. ESG regulation needs to become simpler and more consistent. Reliable ESG data must be more readily available to support the financing and management of the transition.
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What the Association is calling for
The goal is a net-zero economy that remains competitive. The transition and economic success go hand in hand. Investment in climate-friendly and sustainable technologies strengthens innovation, resilience and long-term growth.
Vision
Strengthening the economy through the transition
Supporting companies throughout the transition
Smart regulation
Measures
Ensure climate targets are reliable and that carbon price signals are effective
Promote a positive narrative around the transition
Make ESG regulation practical and proportionate
Improve data availability
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FAQ
Sustainable finance means taking sustainability considerations into account when making financing and investment decisions. Alongside economic factors, environmental, social and governance (ESG) criteria are also considered. The aim is to channel capital into sustainable and future-oriented investments while identifying and managing risks, such as those arising from climate change, at an early stage.
Banks are financing the transition to a more sustainable economy. They provide businesses with capital to invest in climate-friendly technologies and transform existing business models. At the same time, they advise their clients, incorporate sustainability risks into their risk management and help mobilise private capital to support the transition.
Transition finance refers to financing the transition of existing businesses towards more sustainable business models. The focus is not only on activities that are already sustainable, but above all on investments that reduce emissions and support businesses on their path to net zero. For energy-intensive industries in particular, transition finance is a key element of the transition.
Sustainable finance requires reliable policy frameworks. This includes stable climate targets, predictable carbon price signals and a competitive business environment. At the same time, more private capital needs to be mobilised for investment. Banks can finance the transition, but to do so they need regulation that works in practice and reliable ESG data.
Sustainable finance regulation increases transparency and strengthens the management of sustainability-related risks. At the same time, complex and frequently changing requirements create a significant administrative burden and make investment more difficult. The regulatory framework should therefore be made simpler, more consistent and more practical without calling its core objectives or instruments into question. To achieve this, the EU has launched a number of initiatives.
Banks need reliable and comparable ESG data to assess sustainability-related risks, comply with regulatory requirements and support companies throughout their transition. Standardised information on companies and buildings is particularly important. Better access to data makes sustainable financing easier and reduces the administrative burden for both banks and businesses.
The EU Taxonomy is a classification system developed by the European Union. It defines which economic activities can be considered environmentally sustainable. Its aim is to provide greater transparency for investors and businesses, channel capital into sustainable investments and make so-called greenwashing more difficult. The EU Taxonomy is a key pillar of the European sustainable finance framework.
The Association advocates sustainable finance regulation that is both effective and practical. The existing instruments should be retained, but requirements should be made simpler, more consistent and more proportionate. In addition, reliable ESG data, stable policy frameworks and the mobilisation of private capital are needed to enable banks to support companies effectively throughout the sustainable transition.
Torsten Jäger
Head of Sustainable Finance
Claudia Kister
Sustainable Finance