None of the assessed countries fully lives up to the goal of the Paris Agreement regarding sustainable finance. Despite some recent progress, there is still ample room for improvement for the financial markets in the EU, France, Germany and the Netherlands to become ‘fit for Paris’.
This is the main conclusion of the updated and re-launched “finance fit for Paris“ (3fP) – Tracker, which has been developed by Frankfurt School of Finance & Management and WWF Germany in order to provide information on sustainable finance to the public, financial market actors as well as politicians and the media. The 3fP-Tracker evaluates existing regulation and policies for the integration of climate-related factors in the financial market.
The analysis shows that no country gets high scorings: The EU and France are doing comparatively well, but still need to increase efforts to stay ahead of the game. Dutch regulation scores moderate, while Germany stays the European laggard on sustainable finance. Green government bonds are representative for this situation: whilst France has issued green government bonds for some years, the Netherlands just issued their first green government bonds last week and Germany will not issue any this year.
The 3fP-Tracker structures the regulatory analysis along the main economic dimensions of financial market regulation: transparency and disclosure, supervision, risk management and system stability as well as public actions creating an enabling environment for green financial markets. As such, it provides an objective knowledge base for an assessment of the current regulatory framework against one that is “fit for purpose” of meeting the requirements of the Paris Agreement to limit global warming well below 2 degree Celsius. Furthermore, it provides guidance as to where the evolution of the regulatory framework may develop in the future.
The European Union (EU) achieves relatively good results on all three dimensions of the 3fP-Tracker with a particular strength on system stability. Major EU institutions have stepped up efforts on integrating climate-related risks into their supervisory activities. Particularly, the EU Action Plan on Financing Sustainable Growth is driving this process. Consistent progress is highly dependent on the new European Commission and Parliament after the election.
The French regulatory framework provides for a solid inclusion of climate-related aspects in financial markets. Mandatory climate disclosures for French investors have made France a pioneer in this field in 2015. Despite the recent growth of awareness of supervisors, the collective work to be done remains significant, especially for the supervision of asset managers, consumer information or changes in accounting standards.
Dutch financial regulation is not yet ‘fit for Paris’. Nevertheless, the Netherlands achieves relatively good results on all three dimensions of the 3fP-Tracker. A rather unique and potentially highly effective interplay between public and private actors is in place. Progress results from a dialogue between supervisors and the financial sector. The supervisory authorities take on a position as catalysers for assessing and mitigating climate related risks in the Dutch financial system.
The 3fP-Tracker assessment shows that Germany is taking the first steps towards Paris-compliant financial markets. The creation of an advisory council by the government to develop a sustainable finance strategy for Germany could change Germany’s position on sustainable finance fundamentally. First results of the advisory council’s work should be expected for fall 2019. This is particularly important as actual financial regulation and policies would require further improvement to support the transition to a low-carbon economy. One route could be supervisors such as BaFin and Bundesbank becoming more active.
Karsten Loeffler, Member of the European Commission’s Technical Expert Group on Sustainable Finance and Co-Head of the Frankfurt School – UNEP Collaborating Centre:
„The European Union has the unique opportunity to set global standards on sustainable finance. Thanks to the EU Action Plan on Financing Sustainable Growth, climate-related information can become more transparent and standardised. The newly elected European Parliament and the European Commission should uphold the momentum for sustainable finance and ensure that the tremendous progress of the last years is continued and reinforced.”
Julie Evain, Finance Expert at I4CE – Institute for Climate Economics:
“France is positioning itself as one of the leaders in green finance, but there is still a long way to go to achieve a financial regulatory framework that is fully in line with the Paris Agreement.”
Rens van Tilburg, Director of the Dutch Sustainable Finance Lab at Utrecht University:
“Dutch private financial institutions are stimulated and empowered to develop their own initiatives. Which they do, as evidenced by the commitment of the Dutch financial sector to reduce its carbon footprint by 45 percent before 2030.”
Matthias Kopp, Head of Sustainable Finance, WWF Germany:
“In Germany, the financial system is still regarded far too little as an enabling factor to drive change in the real economy towards greater sustainability. This also entails a need for systematic change. It is not enough to address only parts of the financial market as a green niche. The entire financial market must comprehensively integrate climate- and environment-related factors in order to minimise risks and exploit opportunities. This requires appropriate regulatory frameworks, which are increasingly being demanded by the financial players who are restructuring their businesses. As the analysis shows, the German government has so far been too hesitant. With the Advisory Council for Sustainable Finance now being convened, there is an opportunity to make good this lost ground and take on a leading international role. That must be the ambition.”