Incorporating Sustainability in Finance

The climate crisis and a resource management that takes sustainability into account are leading to a wide range of financial and substantive risks. 20 to 30 percent of the market value of listed companies relies on burning fossil fuels without incurring the social costs for this. 

If the Paris Agreement's goal of limiting global warming to 1.5 degrees Celsius is adhered to, at least 267 billion US dollars on balance sheets will become stranded assets. These assets will have to be impaired as the associated raw materials may no longer be burned. 

At the same time, the costs caused by extreme weather events such as storms, droughts and floods are increasing. 500 of the world's largest companies expect climate-related losses of around 500 billion dollars in the next five years.

Furthermore, social factors have an ever-greater influence on the performance of investments in the economy. Risks to reputation such as violations of ethical standards, product safety, as well as environmental and health risks due to products are on the rise. That is why it is becoming more important to be able to assess if management of a firm is adequately prepared for these risks   - and is able to take the right steps to adapt the business strategy.

At the same time, customer demand for investments with a focus on sustainability is growing. Green bonds are a favourite tool to communicate sustainability to investors and to show that a company is planning for the long term. In 2018 sustainable funds and mandates in Germany increased their share of the market to 4.5 percent. The customer deposits of specialist banks that invest exclusively according to sustainability criteria grew by about eight percent.

The Sustainable Finance Action Plan has defined 10 packages of measures that have been translated into corresponding regulations (EU Taxonomy, Disclosure Regulation and MiFID II). The new regulations include uniform definitions and standards for sustainable investments in Germany. In addition, the EU requires all financial market players to disclose the risks affecting sustainability as well as relevant management approaches and the impact of decisions on sustainability factors such as CO2 emissions or water consumption. The legal requirements are not yet fully developed at this point and therefore show a high dynamic of change.

The goal is to divert 180 billion euros annually to sustainable investments by 2030. In addition, environmental, social and governance factors, ESG, are to be anchored as standard in risk management transparency, and long-term planning on the capital market is to be promoted. The demands of the EU and the growing demand for sustainable investments are influencing a large number of practices and functions such as: data usage, investment decisions, risk management, controlling, reporting, back office and marketing.

Our sustainable finance team advises companies on the path to sustainable finance and has a wealth of expertise at its disposal. We help our clients to:

• manage sustainability risks
• identify and measure positive and negative effects of investments on sustainability factors
• make use of the opportunities that arise from this transition. 

We provide your financial institution with all the support it needs  - starting from the analysis of your current situation, the (further) development of a sustainable business strategy all the way through to implementing process-related and technological requirements. In this way, you grow sustainably.