Principles by the Association of German Banks
Executive summary
- When it comes to sustainability ambitions, our society must never let up. We urgently need to achieve further progress on decoupling economic growth from the consumption of resources.
- Private banks are committed to the climate and environmental goals of the EU and of the German Federal Government. These can only be achieved if all the relevant stakeholders work together.
- We are aware that there may be conflicting objectives and social issues along the way.
- However, it’s important to focus on social cohesion; successful sustainability policies need the support of broad social majorities.
- Attempting to achieve our sustainability objectives through economic degrowth would be the wrong approach and not conducive to success. Rather, climate change mitigation and environmental protection as well as overcoming other social challenges requires robust economic growth.
- Economic growth does not necessarily go hand in hand with greater resource consumption. Technical progress and increases in productivity can lead to greater economic output with the same or even less resource consumption (decoupling).
- Economic growth promotes innovation and therefore also product improvements in terms of their sustainability.
- Ambitious climate and environment policies are easier when the economy is growing; social consensus is achieved more seamlessly.
- Above all, the transformation will be achieved through market-based instruments as these enable and promote innovation. By internalising external costs in the area of climate and the environment, there is market failure, which should ideally be resolved through shrewd state regulatory policies (“kluge staatliche Ordnungs-politik”) that improve the functioning of the markets.
- One particularly important role of politics is to create attractive framework conditions for sustainable investments and, where necessary, to eliminate market distortions.
- Achieving sustainability goals promptly will require pragmatic solutions and regulation that supports the transformation in terms of impact (particularly CO2 pricing).
- Priority should be given to economic policy measures for a competitive economic location in order to guarantee businesses the scope for investing in sustainable projects.
- The circular economy will play an important role in the transition.
- The financial sector is part of the solution but will not be able to manage the transformation on its own.
- The financing requirement for achieving our sustainability objectives is enormous.
- Banks will provide the capital, will be sparring partners and risk managers – this means they have an important role to play in financing the transition.
- Financial market regulation must not be allowed to unnecessarily hinder the financing of the transition. Our key recommendations here are:
- Reviewing the general framework for sustainable financing
- Creating a principles-oriented EU framework for transition finance
- Improving the availability of ESG data
- Reviving the securitisation market
- Strengthening the European capital markets
- Adjusting the focus of development banks and guarantee instruments
- There is particular pressure for action to be taken in the manufacturing economy. Companies need a regulatory framework which provides predictability and reliability and sets incentives.
Preamble
Combating global warming and adjusting to the impact of climate change are among the fundamental challenges of our time. For the economy, this challenge is tantamount to a paradigm shift, as a production infrastructure built on fossil fuels will have to be fundamentally restructured within just a few decades.
By the middle of this century, decarbonisation is to be so far advanced that net emissions of CO2 are at zero. This goal was agreed by the international community in Paris in 2015. As a result, European and German policymakers have adopted their own climate targets in recent years and launched a series of, in some cases, ambitious measures. The private banks are fully committed to the goals of these climate policies and see it as their responsibility to contribute to achieving climate change mitigation targets.
This applies equally to protecting the ecosystem. Here too, the international community has set itself binding goals and, here too, the decoupling of economic growth and the consumption of resources is urgently required in order to preserve biodiversity and reduce environmental pollution. The circular economy has an important role to play here since its aim is to keep resources in the economic system and minimise waste.
In order to drive forward the required decoupling of economic growth from CO2 emissions and the consumption of resources and in order to obtain the broadest possible support from society for the transformation, a dynamic, market-driven environment and the right political framework conditions are crucial. Since this is the only way to unleash innovation and to ensure that external costs are internalised.
The attempt to achieve our sustainability goals using a zero-growth model (or degrowth) – as called for by some social stakeholders – would clearly be the wrong way to go about this and would not be successful. Firstly, climate change mitigation and environmental protection require technological innovations and therefore investment, which would be much easier to stimulate and finance in a growing economy than in a stagnating one. Secondly, economic growth does not necessarily go hand in hand with an increase in the consumption of resources. Technical progress and increases in productivity can lead to greater economic output with the same or even less resource consumption. Thirdly, it is much easier to encourage people to embrace sustainability in a growing economy.
Successful climate change mitigation and environmental protection are ultimately tasks for society, in which all stakeholders must play their part: politics, businesses and, not least, citizens. Since every transformation process leads to disruption and there are both winners and losers, it needs to be flanked by regulatory policies and cushioned by social policies. Climate change mitigation and environmental policies also need to achieve political consensus and be democratically legitimate, even if the objectives are not up for discussion.
Achieving sustainable prosperity therefore requires both: responsible stakeholders that make climate change mitigation and resource conservation the guiding principles of their actions and market forces that recognise new growth opportunities in green technology. Governments have the task of setting the right framework conditions for this. If they are successful, all those involved can work together to transform our economy and achieve our sustainability goals.
