Sustainable Finance

Wolkenkratzer, in dessen Glasfassade sich ein grüner Wald spiegelt

Sustainable finance refers to the consideration of sustainability issues by private and public actors. Sustainable finance is thus a cross cutting issue of different policy areas, including budgetary, financial, industrial, and economic policies, as well as sustainability, nature conservation, and climate mitigation policies.

The world needs to respond to the emergencies of climate change and the extinction of species. This entails a comprehensive socio-ecological restructuring to achieve greenhouse gas neutrality and a sustainable economy. Sustainable Finance has a key role to play in this transformation.

The transformation will fundamentally change economic structures and their production and consumption patterns. The financial system leverages change as a provider of capital for the real economy. For example, it provides companies with financial capital in a relatively easy and cheap manner. Sustainable Finance requires sustainability definitions and transparency regulations in line with systematic scientific standards. Sustainable Finance activities at Germanwatch promote these concerns with a focus on German, European, and international Sustainable Finance strategies. Germanwatch as a civil society organisation working on environmental and development issues contributes to the political and economic processes necessary for transformation.

Overwiev Sustainable Finance activities at Germanwatch

Germany ▾Germany ▴

Observer in the second Sustainable Finance Advisory Committee

The second Sustainable Finance Advisory Committee is a multi-stakeholder body consisting of actors from the financial and real economy, civil society, and academia. The Committee convened for its inaugural meeting in the summer of 2022. Appointed for the current legislative period, the ‘Sustainable Finance Advisory Committee 2.0’ will advise the federal government on a variety of issues, including the revision and further development of the first German Sustainable Finance Strategy.

Germanwatch participates in the Committee as an observer. Concrete activities are focused on the working groups dealing with transition plans and the transformation of small and medium-sized enterprises (SMEs) in Germany. Germanwatch also aims to promote cross-cutting issues in other working groups. Christoph Bals, policy director at Germanwatch, had been a voting member of the first Sustainable Finance Advisory Committee. His recommendations in the final report 2021 have laid a solid foundation for Sustainable Finance in Germany.

Transition plans

Transition plans are key instruments for the economic transformation towards sustainability. A transition plan sets out how, when, and through which means a company or actor from the financial market or real sector will achieve climate neutrality or in other ways respect planetary boundaries. Transition plans are therefore highly relevant for various stakeholders:

A transition plan can support companies in achieving targets and in generating transition finance (from the capital market and potentially government funding). It also serves strategic planning and risk management.
Financial market actors can use transition plans to assess the readiness and ability of companies to achieve transition and thus align their portfolio for sustainable investments. Transition plans are therefore essential to overcome the ‘tragedy of the horizon’ of the financial market. Additionally, drafting a transition plan enables financial market actors to set up a strategy for their own transition.
In the future, government funding may require a science-based transition plan and thus accelerate transformation.
Civil society can use transition plans to assess the ambitions of companies and financial market actors.

Germanwatch advocates for the establishment of transition plans as a transformation tool at the German and European level. Germanwatch is involved in the conceptualisation of transition plans, for example in the Sustainable Finance Advisory Committee, and keeps contact with decision-makers in ministries and parliaments.

Transformation of the German ‘Mittelstand’

SMEs account for more than 90 per cent of companies in Germany and are therefore often referred to as the backbone of the German economy. Many of those companies are characterised by a high degree of specialisation and a particularly high level of (international) competitiveness. In combination with a high overall share of German value creation, this makes SMEs particularly relevant to the transformation of Germany as a centre of commerce and industry. However, a rapid and far-reaching transformation is more difficult for SMEs than for large companies, especially with limited resources.

Germanwatch is supporting the transformation of German SMEs both within and outside the Sustainable Finance Advisory Committee.

Europe ▾Europe ▴

Internationally ▾Internationally ▴

Our Partners▾Our Partners▴

Important publications

Consistency Case Study: Actions Supporting Article 2.1c of the Paris Agreement in Germany

Reform of the International Financial Architecture

The Summit for a New Global Financial Pact: Outcomes and Challenges

Summit for a New Global Financing Pact

Publication

02 February 2022

The German G7 Presidency: Ready to lead on climate?

Analysis of the new coalition agreement – Focus on climate protection and finance

Just weeks after the new coalition government took office, Germany took over the Presidency of the G7. The G7 Presidency provides the new federal government an opportunity to demonstrate the importance it attaches to international climate policy and ambitious climate protection. The coalition agreement lays out the government’s course. This briefing paper identifies issues on which the new federal government is already sending strong signals, as well as opportunities and gaps.

Download: The German G7 Presidency: Ready to lead on climate? [PDF; 2 MB]

Leveraging COP26 outcomes for the German G7 presidency in 2022

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Publication

22 December 2021

Insights into climate indicators for companies: What to report under European sustainability reporting standards

Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation

Last April, the European Commission published a new draft of the Corporate Sustainability Reporting Directive (CSRD), which is intended to provide companies with clarity on what and how they need to report and reduce administrative burden. The goal is to remove barriers and to leverage financing the transformation to climate neutrality. This briefing paper provides a brief overview of the ongoing processes around the CSRD and the standard-setting and then takes a first summarizing look at the new European corporate reporting standards.

Download: Full Disclosure. December 2021 Issue [PDF; 288 KB]

Full Disclosure: August Issue 2021

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Publication

01 October 2021

Sustainability due diligence – what it means for companies and how EU sustainability standards can help

Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation

Due diligence affects all companies, as it enables to properly assess relevant risks and impacts. While investors and customers show growing awareness of companies' impacts along the value chain, many companies still provide limited detail. In the sixth article of our briefing series “Full Disclosure” we examine how corporate due diligence legislation relates to sustainable finance and what questions a legislative proposal needs to answer to avoid greenwashing and support comparable due diligence.

Download: Full Disclosure. August 2021 Issue [PDF; 188 KB]

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Publication

22 July 2021

(Financial) Opportunities of European sustainability reporting rules for small businesses

Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation

No company can afford to ignore the financial risks of climate change. This also applies to small and medium-sized enterprises. To reduce these financial risks for companies and investors, it is crucial to be transparent. In the fifth article of our briefing series “Full Disclosure” we examine how small and medium-sized enterprises can benefit from forward-looking reporting requirements.

Download: Full Disclosure. July 2021 Issue [PDF; 142 KB]

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Publication

23 June 2021

Aligning Financial Intermediary Investments with the Paris Agreement

Development finance institutions (DFIs) play a key role in aligning financial flows with low-emission, climate-resilient development pathways. Many have committed to support the objectives of the Paris Agreement. In this working paper Germanwatch, the NewClimate Institute and the World Resources Institute take a closer look at financial intermediary lending by DFIs, proposing a phased approach for aligning indirect investments.

Download: Aligning Financial Intermediary Investments with the Paris Agreement [PDF; 635 KB]

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Publication

11 June 2021

Climate transition plans: How EU standards can help companies to focus on the right data

Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation

This year will be key for future climate policy and especially for sustainable finance in Germany and Europe. Sustainable finance plays a crucial role in improving climate protection and sustainable growth. To this end, Germanwatch joined forces with the Alliance for Corporate Transparency in order to push towards greater corporate responsibility and disclosure requirements to meet the EU and Paris climate targets. This is the fourth article of our briefing series “Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation”, in which we aim to shed light on the need for and benefits of forward-looking reporting requirements in a changing EU regulatory environment.