German Council for Sustainable Development examining the launch of a Hub for Sustainable Financing

H4SF could play a key role in driving sustainability education and reform

The influential German Council for Sustainable Development (GCSD), which advises the government on its sustainable development policy, is examining the launch of a Hub for Sustainable Financing (H4SF) in Germany and Europe that it hopes could play a key role in driving sustainability education and reform in Germany’s finance market.

It follows the Frankfurt stock exchange launching a bid last month to become a hub for sustainable finance.

Marlehn Thieme, Chairwoman of the GCSD, introduced the council’s proposal for the Hub for Sustainable Financing (H4SF) at the annual conference on sustainable investment of FNG (Forum Nachhaltige Geldanlagen), the industry association promoting sustainable investment in Germany, Austria and Switzerland, in Berlin on June 9.

The GCSD was established in 2001. The German Chancellor nominates its 15 members for a (renewable) term of three years. Its mandate is to present proposals for targets and indicators on sustainability to the government, as well as projects for their realization.

Sustainable investments in Germany have not yet reached two-digit overall market share so far, and it is hoped a sustainable finance hub could be a major boost to growth.

FNG found in its newest 2017 market report, which it presented at the conference, that sustainable investments in Germany grew by 15% to €156.7 billion in 2016 vs. 2015. While Volker Weber, chairman of the FNG, welcomed the year-on-year growth, sustainable investments in Germany are lagging in uptake compared to Switzerland, which showed 24% growth to CHF 266.3 billion, and Austria with 39% growth to €13.2 billion.

Weber said: “Especially, in Germany there remains still a lot persuasion and education work to be done.”

In an earlier published discussion paper by the GCSD on the Hub idea, it says that while the Agenda 2030 (UN Sustainable Development Goals) is a driver of sustainable development for the German economy, the finance sector sees the meaning of sustainability to be a “broadly open question”.The paper envisages that the Hub could help develop sustainable finance by enabling partnerships and collaborations. Thieme explains that the main goal of the Hub is to create a platform and enable discussions on pending issues among politicians, market players and investors, as well as produce politically viable results that have a degree of accountability.

Besides setting transparent standards to unleash growth of the sustainable financial market, Thieme says, the Hub could create solutions on a number of issues.

“Through the Hub, we can lay a foundation and come up with ways to stimulate demand and remove practical barriers; starting from educating investors, through reforming the regulated banking advisory services, including increasing awareness [on sustainable finance] and raising financial literacy on the topic. This further entails how to motivate corporates and public authorities to invest sustainably.”

During the conference discussion, a participant said that the German Securities Trading Act currently does not oblige consultants to ask clients whether they are interested in investing sustainably, despite existing client demand. This was one example named of how regulatory reform could drive the growth of the sustainable finance market.

In the survey’s calculation, where it applies a narrow definition of sustainable investments, private investors invested €7.5bn in 2016, down €1.8 billion from 2015. Institutional investors in contrast increased their sustainable assets by €13.8 billion to €68 billion in Germany, holding now about 90% of the market.

Fifteen out of 23 participants in the survey foresee a growth of up to 15% in the German sustainable finance market for 2017, while the remaining 8 participants estimate a rise above 15%.

FNG has over 150 corporate members, including banks, investment management companies, insurance companies, rating agencies, investment companies, asset managers, financial advisers and NGOs, and around 30 individual members.