Frankfurt From the point of view of Bundesbank board member Sabine Mauderer, the energy transition has become even more important in view of the war in Ukraine. “Today’s crisis shows more than ever that we have to change course towards sustainable energy production,” she says in an interview with the Handelsblatt. This applies particularly to countries like Germany, which do not have large fossil reserves of their own.
Mauderer expects that additional investments of 350 billion euros per year will be necessary in the European Union (EU) up to 2030 in order to finance the restructuring of the energy system. The state cannot raise these funds alone.
Banks, the capital market, pension funds, insurers and philanthropists are therefore also in demand when it comes to financing the transformation. “The financial sector must mobilize the necessary funds for the green transformation.”
From Mauderer’s point of view, it is “not just about financing what already meets ESG criteria”. It is important that the transformation from the old, carbon-intensive structures to climate neutrality succeeds. To do this, today’s carbon-intensive companies would need to be given the means to make a gradual transition.
Top jobs of the day
Find the best jobs now and
be notified by email.
In her view, one example of how this could be structured is what are known as sustainability-linked bonds (SLBs). The financing conditions are linked to specific goals. If these are missed, it will be more expensive for the debtor.
Read the entire interview here:
Ms. Mauderer, you are very committed to making the financial system more climate-friendly and you also work in a network with other central banks. In view of the war and supply bottlenecks, isn’t the priority now shifting towards security of supply?
For me, energy security and transformation are two sides of the same coin. Today’s crisis – with the high dependency on fossil raw materials from Russia – shows more than ever: We have to change course towards sustainable energy production. This is particularly true for countries like Germany, which do not have large fossil reserves of their own. In other words, the topic has gained in importance in our region.
How can the transition be accelerated?
The crisis has made fossil raw materials very expensive, making renewable energies more competitive. Many renewable energies are already competitive, but at the same time we see price pressure due to high demand and supply chain problems. One thing is clear: we are facing an enormous challenge. Because it is not about individual sectors, but about the transformation of the entire economy. The later politics sets a reliable framework, the more difficult and expensive it becomes.
Who should pay for this?
In order to finance the conversion of the energy system alone, we in the European Union (EU) will need additional investments of around 350 billion euros per year up to 2030. That’s a huge sum. The state cannot do this alone. The public sector and the private sector must work together here. Banks, the capital market, pension funds, insurers and philanthropists are therefore also in demand when it comes to financing the transformation.
In your opinion, what role does the financial sector play in this?
The financial sector must mobilize the necessary funds for the green transformation. We observe that the demand for appropriately designed systems far exceeds the supply.
A major topic is ESG, i.e. the review of investments according to criteria of environmental protection (environment), social impact (social) and good corporate management (governance). How can it be ensured that these criteria actually lead to more investments that can slow down climate change?
It is important that the transformation from the old, carbon-intensive structures to climate neutrality succeeds. So it’s not just about financing what already meets ESG criteria. It’s also about providing today’s carbon-intensive companies with the means to make a gradual transition.
How can this be credibly implemented?
Investors need assurance that the funds they are investing actually contribute to the transformation. This requires three things: firstly, a clear definition of sustainable activities. Second, good data, and that comes from internationally harmonized disclosure requirements. And thirdly, we need product standards that can be checked by qualified and independent bodies. In this way, we ensure that financial products labeled as sustainable actually make a positive contribution to transformation.
Such financing would initially start with companies that are still harmful to the climate and only later enter the “green” area.
A good example are so-called sustainability-linked bonds (SLBs). The financing conditions are linked to specific goals. If these are missed, it will be more expensive for the debtor. This is how you create the right incentives.
What contribution can the Bundesbank make to the transformation?
First of all, fundamentally: We do not make climate policy, but we take climate risks into account, which are also financial risks. And that applies to all areas in which we operate.
How exactly does the Bundesbank intervene?
Our banking supervisors look at the risks on banks’ balance sheets. And it is also a financial stability issue. We also have our own non-monetary policy portfolios, for example for pension obligations. When investing, we take climate risks into account to a greater extent. And we manage money for public bodies, such as the federal government and individual federal states. We implement a sustainable investment strategy for almost all of our 16 clients.
And what about bonds that are bought for monetary policy reasons?
Here government bonds play the main role with 80 to 95 percent. The appeal here would be to make national budgets more sustainable. We also buy corporate bonds as part of the purchase programs in the euro system. These make up a smaller part. To this end, the Governing Council of the ECB decided last July to take greater account of climate risks.
What could that look like?
We’re still discussing that. There was a whole range of resolutions, for example that we want to expand our economic models with regard to climate risks. Much is still being discussed. A first step will be to measure and publish the carbon footprint of our non-monetary portfolios. The Bundesbank will start doing this this summer.
The EU has presented plans for a taxonomy to make ESG criteria more transparent. What role does this play for central banks?
There are many approaches and taxonomies worldwide, but some of them differ greatly. The EU taxonomy is complex, which poses a challenge for some companies when it comes to implementation. In Asia, for example in Malaysia and other Asean countries, the requirements are more open. It’s more about principles than detailed specifications. The approach is more flexible, but allows greater leeway and thus more uncertainty.
What is your position on the dispute in the EU as to whether nuclear power and gas should be classified as sustainable energy sources?
Transparency is crucial in these questions. In this way, investors can decide for themselves how they want to position themselves. In this context, I think the initiative to include climate risks in international accounting standards is important. This also ensures the necessary harmonization. I therefore welcome the work of the International Sustainability Standards Board (ISSB) to do just that. It was important that the German financial center succeeded in bringing the ISSB to Frankfurt.
More: Controversial issue of sustainability: the fund industry is up in arms against the Bafin.