This month, Dr. Sabine Mauderer, executive board member at the Deutsche Bundesbank, wrote in the German press on central banks putting climate change “higher on the agenda”.
It signals a shift at an institution that is seen as a pillar of prudence and caution and one which has a strong voice at its Frankfurt neighbour, the European Central Bank.
“It’s not so long ago that the Bundesbank was rather sceptical when it came to addressing climate risk – now it wants to ‘lead by example’. The times they are a-changing,” tweeted Uli Volz, the German economist who heads up the new Centre for Sustainable Finance at SOAS in London.
Dr. Mauderer, a lawyer by training, joined the Bundesbank in September 2018. For the past decade she held various senior roles at Germany’s development bank KfW. It is the country’s third biggest bank by balance sheet, but also a major player in responsible investment; it has a large microfinance portfolio (€2.2bn) and is also a major green bond issuer (€18.3bn by volume since 2014).
A few weeks after she joined the Bundesbank, Dr. Mauderer, who also held senior roles in Germany’s Federal Ministry of Finance earlier in her career, delivered a keynote speech at a scientific conference on the topic of green finance.
She said: “Central banks are reluctant to admit it but we know central banks have an extraordinary power to move markets in certain directions, including green finance.”
Network for Greening the Financial System
The event focused on the role of central banks in scaling up green finance and was co-hosted with think tank Council on Economic Policies and the (NGFS), the Network for Greening the Financial System group of central banks.
The Bundesbank is taking the lead on the “Scaling up green finance” workstream at the NGFS. (The People’s Bank of China chairs the supervision workstream and the Bank of England is leading on macro-financial.)
Dr. Mauderer took over as chair of this workstream from her board member colleague Joachim Wuermeling in April.
In an interview with RI, she says the Bundesbank, one of eight founders of the NGFS, didn’t expect it to explode so quickly in terms of membership numbers.
It’s grown five-fold in 20 months to 42 members from five continents. “I think especially over the last 6-12 months many have realised that climate change will have a significant impact on the industry, the real economy and the financial industry,” she says.
She says that NGFS members worked hard to develop a common starting point, taking into account the different ways central banks are governed.
But a consensus was formed and in April it released its first comprehensive report A call for action. Climate change as a source of financial risk with six high-level recommendations for central banks and governments.
A conference hosted by the Banque de France, which runs the NGFS secretariat, featured speeches from high-profile governors like the Bank of England’s Mark Carney and Banque de France’s François Villeroy de Galhau.
“To have representatives of major central banks stand behind this report and speak at the launch event, saying this is really crucial, was a major success. So it is very important for us to be concrete now because time is very limited.”
Over the coming months the NGFS will release a series of reports on various topics including scenario analysis.The scaling up green finance workstream will aim to publish a handbook on the portfolio management of central banks in October. It will cover best practice approaches of member central banks.
“This could be helpful not only for central banks, but also the private sector,” Dr. Mauderer says.
The Bundesbank itself has been a facilitator for “greening” investments since 2007. Alongside its supervisory and monetary policy roles, it acts as portfolio manager for Germany’s federal and state governments. Dr. Mauderer says it currently invests a substantial single-digit-billion amount in accordance with sustainable criteria.
Recently, the German State of Hessen became the first of its kind in the country to sign the Principles for Responsible Investment.
The Bundesbank acts as its asset manager. “The State of Hessen is very active when it comes to sustainable finance. And they even have under their coalition contract between the Conservative and Green party that they want to issue a green bond. I think this is reflected in the commitment to the PRI and this is a good development,” says Dr. Mauderer. [Since this interview was conducted, Hessen has bought a stake in ESG data firm Arabesque.]
Last year the Dutch central bank DNB, an NGFS founder, became the first central bank to join the PRI and in May of this year, the Hong Kong Monetary Authority, the city-state’s de facto central bank, said it planned to join the PRI and intended to join the NGFS.
When asked if the Bundesbank could join the PRI, Dr. Mauderer, who calls the DNB a frontrunner in sustainable finance, says it will see how their experience is. “The exchange between us and the DNB is frequent,” she says.
Alongside a guide on portfolio management from the NGFS, Dr. Mauderer will also be overseeing an ambitious project dealing with market dynamics. “Currently the demand for green products exceeds the supply by far.
“As you know the Fed isn’t a member of the NGFS, but the US market is important. Therefore, we plan to conduct a global survey to have a proper analysis about the development of the market for green investments worldwide, on future issuers and the challenges ahead. So that will keep us busy.”
Domestically, the regulator BaFin will be producing guidance on its expectations around climate change for the German financial sector.
Germany moving on sustainable finance
As well as the Bundesbank’s recent interest in sustainable finance, the German government is looking to position Germany as a sustainable finance leader.
It’s a significant step, given the size of its economy and influence in the European Union, especially in the context of the EU’s ambitious sustainable finance action plan. And it’s a recent change, “we are big and slow (on sustainable finance),” says one insider, though local asset management players such as Union Investment, Allianz Global Investors and DWS have a track record as leaders.
Dr. Mauderer sits on a group set up by Germany’s government to develop a national sustainable finance strategy.
To support this, the Bundesbank is holding what it describes as a flagship conference on sustainable finance in October. “Our goal here is to align politicians, academia and market participants on the topic,” says Dr. Mauderer.
Finance minister Olaf Scholz will deliver a keynote and all interested German political parties will be invited, as will big German corporates and financial institutions.
Dr. Mauderer says central banks can play a key role in tackling the climate crisis. “They are neutral. So central banks can play a role in raising awareness and knowledge building.”
“Market neutrality” is a key tenet of many central banks, but some feel this could become problematic in addressing climate change with regard to monetary policy.
Monetary policy
Over 2016-2018, the Bundesbank was one of the six central banks responsible for implementing the Eurosystem’s Corporate Sector Purchase Programme (CSPP), one of the tenets of its massive Quantitative Easing (QE) programme.
A recent study from NGO Positive Money Europe assesses that more than 63% of the programme has been invested in sectors that contribute the most to global warming. It found the Bundesbank is investing heavily in the automotive sector.
Observers say this reflects a disconnect between central banks focusing on climate change risk increasingly in their supervisory roles, but not in their monetary policy activity.
“This isn’t the first time we’ve been asked this – ‘why are you engaging in the NGFS and on the other hand I see this?’” says Dr. Mauderer.
“First of all we have different portfolios. Monetary-policy related portfolios and non-monetary policy related portfolios.”The Bundesbank has its own funds portfolio, and as described above acts as an asset manager for central and state government pension reserves and funds.
Here, Dr. Mauderer says it can invest sustainably its own funds, and those of clients if they ask for this. But for the CSPP – part of its monetary policy work – it has to stick to its mandate. She says: “That is price stability and alongside that goes that fact that we have to be market neutral, so we have to reflect the market, there is no way we can just choose.
“What it also means is that if we see a trend to more green bonds by the market we could reflect this. This is my hope. That the market maybe won’t completely change, but that we see a shift towards more sustainable, more green bonds, so that we could buy more of them.”
During the interview, Dr. Mauderer often stresses the urgency in tackling the climate change challenge. RI speaks to her in a week where Frankfurt was experiencing almost its hottest weather since records began.
Looking at the big picture, she says more data is needed, and that central banks can’t do everything.
“If we really want to combat climate change within this limited framework what we do is just a little part of it. The major part needs to be done by governments”.
But she also is optimistic:
“The NGFS is completely voluntary. In my experience with these types of initiatives you often have to force people. This network is different. You will see a lot of young central bankers come over and be so passionate about being part of it as everyone knows they are doing something from the greater good.”
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