23 September 2020

BDB: Sustainable Finance - The Contribution of Private Banks

This position paper shines a light on the role of private banks in sustainable finance and, more specifically, in climate protection. It aims to show where the industry currently stands, what major challenges it faces and what private banks are planning for the future.

Climate protection and sustainable economies: challenges for our society 

Combatting climate change is one the most pressing tasks of our time. If humanity does not take action now, it is facing an average global temperature increase of around 3.2°C by 2100[1]. A temperature rise of this magnitude would have disastrous consequences for the environment, the economy and the whole of society.

Persistent periods of drought in Central Europe, more frequent and increasingly powerful storms in the Caribbean, widespread fires in the Siberian tundra – these and other recent phenomena provide a vivid illustration of how climate change is already impacting the environment today. And this has consequences for the economy and society: rising sea levels, for example, threaten our innovative and burgeoning coastal regions. Thanks to the changing climate, the distribution of important resources such as water are already becoming a source of conflict; social tensions are only likely to increase in future. This means that if we want to continue living as we have done, we must achieve the aims of the Paris Climate Agreement, but also make a tangible contribution to meeting the UN’s Sustainable Development Goals (SDGs).

But we must not stop with climate protection, we must also keep an eye on other aspects of environmental protection, such as biodiversity or waste prevention, as outlined in the SDGs. There is also an increasing focus on aspects of social equality, protecting human rights and sustainable corporate governance.

This position paper shines a light on the role of private banks in sustainable finance and, more specifically, in climate protection. It aims to show where the industry currently stands, what major challenges it faces and what private banks are planning for the future.

This summer, the Association of German Banks conducted an extensive survey of its members. The main thrust of the questionnaire was to discover how important this topic is for individual banks, where they stand in terms of implementation, what risks they see and how they are dealing with those risks. This paper highlights some of the key findings from the survey.

The role of private banks in Germany

The Association of German Banks has 170 institutions among its members, ranging from small specialist banks to global universal banks. It also counts among its members other companies, including several fintechs, whose specialist knowledge and experience provide valuable insights for our committee meeting discussions. This structure, which has grown and established itself over the years, provides an ideal platform for embedding such an important and all-encompassing topic as sustainable finance[2]in companies’ business strategies and processes across the board, and establishing it as a banking industry standard.

One key area of sustainable finance is climate protection. Germany’s private banks believe it is vital that the economy achieves greenhouse gas neutrality by 2050. The aim must be to sustainably limit global warming to below 2°C, in accordance with the Paris Climate Agreement.

The financial industry and private banks have a key role to play in achieving this aim because they have control over an important tool. They are financing the economic transformation, thus making an essential contribution to achieving global and national climate goals. Apart from the Paris Climate Agreement, they are also guided by the Sustainable Development Goals of the UN’s 2030 Agenda and by the aims of the Principles for Responsible Banking.

In order for private banks to fulfil this key role properly and achieve the desired objectives, the following steps should be taken.

The landscape of private banking in Germany features a wide variety of business models, regional focuses and ownership structures. Alongside globally operating banks, there are also many medium-sized institutions that are firmly established in their regions, often with a long company tradition, who see themselves as having a particular responsibility for their business regions. Internationally positioned banks offer a different range of services – but all banks are affected by the issues of sustainability and climate change in one way or another.

The private banking industry as a whole has been the source of many important incentives for climate protection in recent years. Member banks have been quick to get involved in international initiatives, for example, in helping draft the UN Principles for Responsible Banking, thus assuming a pioneering role. The association benefits from this expertise and the international positioning of its member institutions and, as a result, can draw on their experiences in other countries. Our aim is to coordinate and interlink these activities more closely, with a greater focus on climate protection implementing sustainability criteria....

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