Klimawoche an der Goethe-Universität

November 28, 2019

Prof. Volker Wieland, IMFS, and Prof. Volker Brühl, CFS, explained what a suitable climate policy could look like and what initiatives there are on the financial markets in a joint lecture at the Climate Week at Goethe University. In order to cut emissions across different sectors as quickly as possible, it is advisable to start where it is most likely to work, said Wieland. “Harvesting the lowest-hanging fruit first” is one of the principles of the special report presented by the German Council of Economic Experts on the climate debate. It is crucial to signal the scarcity of the good via a price for CO2.

As Germany only accounts for a small proportion of global carbon dioxide emissions, it can act as a role model, but not as a pioneer. The Council of Experts therefore advises comprehensive emissions trading that not only covers the energy sector, energy-intensive industry and intra-European aviation in all member states by 2030 at the latest, but is also extended to the transport and building sectors. However, even this is not enough to achieve the targets of the Paris Climate Agreement. “Global coordination is essential in order to reduce emissions,” warned Wieland.

The climate debate has already gained momentum on the financial markets: The market for sustainable bonds has grown rapidly recently. However, the foundations are still being laid for green bonds to achieve a significantly larger volume, said Prof. Volker Brühl, Managing Director of the Center for Financial Studies. There is still a lack of a uniform taxonomy at EU level as to when a financial product can be described as “green” and “sustainable” according to ecological and socially sustainable criteria. This is the only way to avoid being misled if, for example, only a small part of a fund is really “green”. However, Brühl sees further hurdles for sustainable financing: “ESG bonds do not currently offer better financing conditions than traditional bonds, which is why many treasurers refrain from issuing them.”

Information on a company's total carbon footprint is also not yet included in the reporting obligation or in sustainability reports. Brühl also sees this as an opportunity for the financial center Frankfurt to establish a corresponding index. As 80 percent of SMEs in Germany are still financed via bank loans, Brühl also advises not to ignore “green loans”, where the credit margin is dependent on a company's ESG rating. However, this is only conceivable with a good credit rating. However, Brühl is opposed to an obligation to issue “green bonds”: “This does not work in all sectors and carries the risk of greenwashing”.