Sustainable financing can no longer operate as a niche, German finance expert says

More can be done to ensure financing is more 'green'. According to Kristina Jeromin, shareholders now have the opportunity to help shape this transition towards a more sustainable future.

In an interview with EURACTIV Germany, Deutsche Börse Group’s head of sustainability management, Kristina Jeromin, spoke about the increasing involvement of shareholders in the activities of their respective companies and explained why she considers ‘Greenwashing’ accusations to be destructive.

Kristina Jeromin is the head of the sustainability department at the Deutsche Börse Group. She has been one of the leading voices in promoting the sustainable transition of investments in Germany and wants to draw the attention of the financial world towards the climate crisis. 

In recent months, German shareholders have increasingly interfered in the activities of their respective companies. Are we seeing the emergence of a trend? Are shareholders beginning to require companies to adopt a more responsible approach?

The crucial question here is: What is important to shareholders? This is primarily a balanced risk-return distribution. Of course, some shareholders consciously rely on sustainability criteria, but what I find more interesting is the fact that shareholders are becoming increasingly aware of sustainability issues.

They are becoming increasingly aware that this is relevant to their business. They want to ensure that the company is fit for the future. Of course, there are also those who are already convinced but to make this a broader topic of interest in the longer term, it is useful to ensure that financial interests and a stable profit margin are the drivers.

However, I can already see a trend of reinforced consultation of ESG [ed.: abbreviation for environmental, social and governance] information.

Sustainability criteria are increasingly becoming the basis for investment decisions. How do you perceive the actual influence that shareholders exert on corporate strategies today?

An important task for shareholders and financial institutions is to assist the real economy towards limiting climate change to 1.5 or 2-degrees. This responsibility needs to be assumed. The influence shareholders actually exert depends on their strategy and also varies across industries.

However, we are seeing stronger commitment, meaning that the connection between company management and shareholders is becoming increasingly close.

This is intended to accompany medium- to long-term risk portfolios, including the achievement of climate targets. Investors could, however, become slightly more active, which is something that could be developed further.

The dialogue between the real economy and the financial sector needs to be further intensified.

What is the current significance of ESG information along with traditional financial ratios? And how comprehensible are these environmental and social aspects for shareholders?

If shareholders are interested in long-term, stable performances and corresponding returns on their investments, it is essential that companies include all business-relevant information when identifying both risks and opportunities.

The topics that are to be addressed in such situations will depend on a company’s value chain. In any case, all relevant risks must be taken into account.

Today, risks are no longer limited to the classic financial ratios alone but are increasingly playing a role – especially in the medium and long term – including with regard to ESGs. It is, therefore, a rational consideration for shareholders to monitor this information closely.

What important strategies should be adopted to boost sustainable investment?

The keyword is transparency. Essential ESG data also needs to be made more available and shareholders should be reviewing data in a standardised manner.

This is an essential point of the EU action plan on sustainable finance and in the debate on taxonomy. There is a need to create common understanding and standardisation.

In my opinion, this will be a central task in the coming years. We should not expect that it will be possible to complete this overnight. Although it is a slow process, we already have a considerable amount of data on the market today and we see that shareholders are already working with this data.

A great deal can already be done before the taxonomy is completed in Brussels. In parallel, we are seeing an increase in standardisation and we should be making sustainable investments more mainstream.

I often hear that we “report the classic financial figures and a little on climate.” This should not be the case. A company must communicate all the data that will be important in our world in ten or fifteen years. And there is no world without climate change.

Since last year, so-called green bonds have been highlighted on the website of the Frankfurt Stock Exchange. Is demand for these bonds growing?

It is still too early to give a valid answer on this. But the Green Bond market has been growing for years.

Creating transparency and informing investors accordingly so they can make targeted investments is a central task of a stock exchange.

Green bonds are now a serious product in the financial world, and we want to make them transparent so that investors can make informed decisions.

Europe takes first step toward clarifying booming 'green' finance

The European Commission unveiled on Thursday (8 March) its highly expected action plan on sustainable finance, aiming to clarify what can be labelled as “green” investment and potentially lowering capital requirements on asset holders.

Speaking of informed investment decisions. The term sustainability is very broadly defined, and critics often speak of greenwashing in this context. How do you make sure that Deutsche Börse’s sustainability label is more than just an empty promise?

The term “sustainable” is problematic because it is not defined. I translate the term “sustainable” with “fit for the future”. Has a company adapted to future scenarios? To ensure this, all essential key figures need to be included. Our sustainability indices are based on data from Sustainalytics, our low-carbon indices on data from the not-for-profit charity CDP.

These are high-quality partners who work in a transparent manner. For Deutsche Börse, it is important that we understand the methods used by our data providers. We may work with other sustainability indices in five years’ time but that is fine. It is a process that must always allow ambitions.

I often see critics igniting the debate by saying that “in the end, it is all greenwashing and it turns out that none of it is sustainable.” Such statements stir up the atmosphere and suggest that all the data collected is about marketing. However, it is simply not the case.

Of course, more can be done and shareholders now have the opportunity to help shape this transition.

What does this process mean for the development of taxonomy at the EU level? Will standardisation help avoid any errors?

Mistakes will always happen. We have seen that VW was listed in the sustainability index before the diesel scandal was uncovered – then they were excluded accordingly.

Only in the rarest of cases will we have a 100% guarantee that no mistakes will be made but we should do everything we can to inform investors accordingly.

In the taxonomy debate at European level, we have to be prepared for the fact that we will constantly make improvements. An intensive exchange with data providers can generate security here. But we cannot overload the sustainability issue too much.

We are currently learning how to deal with this data, and although we see that great care is being taken, mistakes can still creep in. It is a joint journey by rating agencies, data providers, companies, the real economy and the financial sector, who are all taking steps towards greater sustainability.

Capital markets need to start making sustainability mainstream – report

We need to reboot the financial system and rethink old structures. This is what the OECD, the World Bank Group and the UN Environment Programme are calling for in their new joint report. Sustainable finance should become mainstream, but the market is still lagging far behind. EURACTIV Germany reports.

[Edited by Zoran Radosavljevic]

Further Reading

Nuclear power excluded from EU's green investment label

The European Parliament voted on a proposed classification for sustainable assets on Thursday (28 March), voting to exclude nuclear power from receiving a green stamp of approval on financial markets.

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