BERLIN (Reuters) - Germany faces growing risks and high costs if it does not revamp its financial system to focus more on climate change and sustainability, according to a new report by the World Wildlife Fund and finance groups including Deutsche Boerse (DB1Gn.DE).
The study faulted German conservatives and Social Democrats, who are considering renewing the ‘grand coalition’ that has ruled Europe’s largest economy since 2013, for failing to even address ‘green finance’ in their blueprint for a new government.
“This is not about adding a green brick to the financial tool kit. It’s about the fundamental climate and environmental compatability of all financial structures and finance flows,” said Joerg-Andreas Krueger, a top WWF official in Germany.
The report, prepared by WWF, the Frankfurt School of Finance & Management and the Hub for Sustainable Finance Germany, which includes Deutsche Boerse, said Germany should follow the lead of other European Union countries like France, Sweden and Britain -and even China - in using their capital markets to help encourage sustainable investments and work toward climate goals.
Failing to take a holistic approach portends significant risks for investors and citizens in coming years, given the high costs involved in meeting ambitious global targets for reducing carbon dioxide emissions set under the Paris climate accord.
The report urged introduction of climate stress tests to avoid the loss of investments, or so-called stranded assets, in areas such as coal technology.
Such investments will lose value as the global community implements the Paris accord and moves away from fossil fuels, the report said, underscoring the fiduciary responsibilities of pension funds and other institutional investors.
A systematic approach would also help steer investments into promising areas of the renewable energy market instead of continuing to encourage funding in fossil fuel-related projects. That in turn could also help create new opportunities for many sectors of the German economy, the report said.
“It is important that the risks associated with climate changes are sufficiently accounted for in risk management and made transparent to investors,” the report said. “This serves core goals of financial market regulation such as ensuring the stability and efficiency of the financial system.”
The BDI industry association this week estimated it would cost Germany more than 1 trillion euros ($1.2 trillion) to meet the lower end of the EU’s target to reduce carbon dioxide emissions by 80 to 95 percent by 2050.
Hitting the upper target would require large amounts of additional spending, it said, warning that German competitiveness could be jeopardised unless the carbon reduction targets were adopted worldwide.
Germany’s would-be coalition partners have agreed to drop plans to lower CO2 emissions by 40 percent from 1990 levels by 2020, although they intend to keep a 55 percent target for 2030.
The WWF study recommended several key steps to ensure stability in financial markets, including improved risk management and better analytical capabilities.
The federal government should also follow the lead of other European countries and some German states, by adopting sustainable guidelines for its own investments, setting criteria for new bourse listings, using special market indices and issuing so-called green bonds, as well as integrating German climate targets into its export guidelines.
Reporting by Andrea Shalal; Editing by Richard Balmforth