The Sustainable Finance Landscape in Germany

This chapter discusses the current trend of mainstreaming sustainable finance in Germany. It provides an overview of contributions of different stakeholders to this trend and sheds light on the evolution of the sustainable finance landscape in Germany, including banks, the insurance sector, rating agencies, nonprofits, and academia. EU regulations are currently driving change and promoting sustainable finance in Germany. New policy initiatives and regulations are closely monitored and discussed by diverse stakeholders, including organisations with a long-standing expertise in promoting responsible and ethical investments. Advocacy-oriented nonprofits critically address greenwashing and engage in debates on qualitative aspects. The sustainable finance trend is expected to gain further traction in Germany.

Sustainable Finance in Europe

The European Union has a clear strategy on how sustainable development should be financed. However, there is still no regulation that defines which activities can be considered sustainable and which cannot. Private initiative has taken the lead in recent years with the publication of different taxonomies and principles applicable on a voluntary basis to green financial products and social projects. The EU taxonomy, issued in 2020, establishes criteria to determine whether an economic activity is environmentally sustainable, and the green bond standard is in the consultation period in 2021. The EU taxonomy will increase investor confidence in green financial products, prevent greenwashing, and reduce information costs. This chapter reviews the evolution and future application of the EU taxonomy, the EU green bond standard, and the need to adopt a taxonomy for socially sustainable activities.

Trends and Prospects in Climate Finance

An effective response to climate change that assures a sustainable development pathway will require a fundamental transformation towards a low carbon, climate-resilient societies. Each change need for solid financial support, financial solutions, and dedicated instruments, taking into account ESG factors and taking into account the impact of financial crises. This chapter aims to bring together theories, trends, dilemmas, and directional concepts to answer the question about changes in the existing paradigm of climate finance. On the other hand, the analysis of trends and presenting future prospects regarding sustainable finance will be aimed at enhancing the substantive and practical knowledge of the target audience. In addition, in this chapter, the following issues will be presented in particular: changes in the sustainable finance paradigm and the emergence of the climate finance paradigm, macro-and micro-financial aspects of climate change taking into account the influence of risk (including ESG risk), and a new landscape of climate finance.

ESG Materiality

Sustainable finance proponents argue that integrating environmental, social, and governance (ESG) factors into investment decisions should have a positive long-term material impact on financial performance and ultimately benefit wider society as a whole. This chapter is based on interviews and an ESG materiality survey that was run among 20 prominent South African asset managers. The results demonstrate that if there is a growing awareness of ESG factors among the respondents, there are some perceived tensions around how to practically embed ESG factors within investment processes. In addition, the results show that the integration of ESG factors into financial valuation are not yet mainstream and that more needs to be done to demonstrate how the integration of ESG factors within investment processes materially impacts financial performance and meanwhile contributes to the sustainable development of economies.