Climate protection needs strong banks

What is at stake and how ambitious Europe’s climate policy projects are is largely known. With its European “Green Deal”, the EU Commission wants to make Europe climate neutral by 2050, and by 2030 CO2 emissions across the EU are to be reduced by at least 55 percent compared to 1990 levels. In order to achieve these goals, a whole series of energy and climate policy EU laws will have to be adapted in the foreseeable future.

But it will be at least as important how the huge investment needs that go with it can be financed. The figures speak for themselves: According to reliable estimates, more than 350 billion euros are required every year to transform the European economy in the direction of climate protection. To finance the digital change, which in turn can contribute to climate protection, a further 125 billion euros are added each year. Above all, private capital must be mobilized for this.

Banks are already playing a key role in financing the green transformation, in particular. Many French and German institutes are members of the Net Zero Banking Alliance and support the Principles for Responsible Banking. You are now going with your customers on the path that the Paris Agreement provides. In addition, they finance a double-digit billion amount every year for the expansion of renewable energies. This trend will accelerate even further in the years to come.

An international approach is important

That is why it can be said today: more climate protection is only possible with the banks. In order for even more capital to be mobilized for this purpose, however, the banks need better framework conditions. This applies, for example, to the EU taxonomy, which will define which financing will be considered sustainable in the future. Here we cannot limit ourselves to projects that are already clearly green. Rather, we must also support the gradual transformation of the economy towards more sustainability.

It is also important to have an international approach so that the ambitious and correct plans of the European Union find their way around the world and do not develop into a disadvantage in competition with other regions. But that also means: the taxonomy should by no means be too detailed. Above all, however, we need a strong European banking and capital market in order to be able to finance the change in the economy effectively and efficiently. The new federal government has also committed itself to the goal of an efficient European capital market and a European capital market union.

Unfortunately, the Capital Markets Union is one of those projects that are running under the radar of the public and large parts of politics, although they are of great importance for the future and competitiveness of the European economy. It would therefore be in the interests of all of Europe for Germany and France to throw their weight in the balance in order to make significant progress on this issue. We hope that the French EU Council Presidency will provide further important impetus in the next six months.

The financing of the transition to a sustainable and digital economy could, however, be jeopardized by the fact that the Basel capital standards become too restrictive for Europe. With its legislative proposal presented a few weeks ago, the European Commission tried to take the specific European environment into account in order not to let the burdens on banks in the EU increase too much. However, the proposed measures are limited in time, with negative consequences for corporate financing.

US regulation is not a role model

The French and German banking associations will therefore continue to work together with their European partners to ensure that the Basel rules take into account what is important for the European economy. Our European universal banking model strengthens the European economy; it makes a major contribution to ensuring that our companies find comprehensive and efficient financing conditions.

Strictly aligning the regulation with the US model would, however, restrict access to real estate loans and the financing of companies and the economy as a whole, thereby hindering their transformation. The specific effects of the regulatory debate, which may appear technical although eminently political, must therefore not be downplayed. Maintaining the efficiency of our banking model means maintaining the efficiency of our European economic model.

The pandemic shows that the European banking sector is stable and business models are crisis-proof. The institutes play a decisive and responsible role in helping companies through months that threaten their existence and thus cushion the burdens of lockdown and loss of sales. It is all the more important now to use the potential of the European financial economy, but also of the European capital markets, for the even greater tasks of the future.

Profitable European banks are essential

Together with their partners, Germany and France must pull all levers in motion so that a real European single financial market takes shape in the next few years. Profitable European banks and a uniform European capital market are not only important for climate protection; They are also indispensable for the global competitiveness of the European economy and a stronger sovereignty of Europe in a world in which the balance of power is currently shifting tectonically.

It must be the aim of the European community of states to bring their great economic potential to the fore on the international stage and to stand up for European values ​​and interests with a powerful voice. Germany and France, the two largest Member States of the European Union, know what is at stake here. Only if they move forward together can Europe be the strong, sovereign and economically successful continent that we all want.

The authors: Christian Sewing is President of the Association of German Banks. Nicolas Théry is President of the French Bankers Association.