12/04/23 | House of Finance: News

Towards a House of Green Finance: New research impetus to promote sustainability and biodiversity finance

“With its resources and expertise the House of Finance is excellently positioned in the area of green finance research,” Prof. Dr. Rainer Klump, HoF Executive Director, affirmed at the 26th Euro Finance Week. Two House of Finance events in November 2023 provided insight into current research on this topic.

How climate change and other environmental challenges will affect the financial sector is an ubiquitous question at the present moment. Policymakers, regulators, investors, and firms are all eager to contribute to green transformation, yet clarity does not always prevail concerning the specific contributions they can make, or the conditions that can enable transformation. Shedding light on such issues is a key concern of researchers at the House of Finance and other departments at Goethe University Frankfurt, Prof. Dr. Klump emphasized during a panel discussion held at the “Green Finance Hub Frankfurt” event on 14 November 2023. The event took place to mark the occasion the 8th Green Finance Forum of the Euro Finance Week.

“Frankfurt has an ideal ecosystem for the development of green finance, as it is home to a strong financial industry and to many experts in financial research; it also boasts considerable scientific expertise in the area of climate change and biodiversity. The House of Finance sees itself as an important node in a dynamic network of actors, not least due to its integration with Goethe University, which boasts strong ties to relevant actors in the region,” Prof. Dr. Klump explained.

The subsequent deep dive organized by the House of Finance on the topic of “Towards a House of Green Finance” provided a detailed look at current research activities. As demonstrated by the keen interest shown in the event, practitioners have a strong thirst for research findings in the domain of green finance that can help to guide their activities. To what extent have regulatory measures been successful in achieving desired outcomes? How can banks fulfill their role in the process of bringing about green transformation? What are the financial risks associated with the transition to a carbon neutral economy? These are just some of the highly salient topics being investigated by House of Finance researchers.

At the event, Tobias Berg explained that doubts regarding the Co2 reductions proclaimed by major emitters in the wake of the Paris agreement are far from unfounded, as such reductions are associated with the shifting of polluting assets abroad as part of disinvestment activities.  Based on a survey of 700 business customers of DZ BANK AG, Isabelle Hinsche offered a nuanced view of the role that banks can play in advising and supporting their corporate clients in the green transformation process. Hinsche’s study shows how various customer attributes are associated with specific interests and needs. With a view to identifying the best policy tools for encouraging green transformation, Anna-Lena Maurer discussed the market effects induced by regulatory measures designed to encourage corporate sustainability. In his presentation, Alexander Dück provided insight into how macroeconomic models are used to simulate financial effects and stability risks associated with the transition to carbon neutrality.

Climate protection is not the sole purpose of green finance, however; preserving biodiversity is another important goal. This point was emphasized by Prof. Dr. Klump at the House of Finance workshop on “Biodiversity Finance” that took place on 27 November. Considerable efforts are required to achieve transparency in corporate reporting and the adoption of appropriate uniform standards. The definition of such standards – which is the responsibility of the newly established International Sustainability Standards Board (ISSB) in Frankfurt – is a complex challenge that requires particularly intensive interdisciplinary collaboration. At the workshop, an overview of the current state of biodiversity research was provided by Henner Hollert, Spokesperson of the “Sustainability & Biodiversity” Profile Area of Goethe University, together with Florian Schwarzmüller of the Senckenberg Biodiversity and Climate Research Centre. The setting of biodiversity standards hinges crucially on the precise identification of causal relationships, the development of appropriate intervention measures, and the post-hoc assessment of effects.

For Lydia von Krosigk of KfW, the 2022 conference in Montreal was a “Paris moment” for the biodiversity movement. Merely to achieve a net positive balance in biodiversity trends, additional financing of some 711 billion US dollars is needed, von Krosigk explained. She noted that the adoption of uniform reporting standards is a decisive lever for encouraging capital flows in favor of biodiversity investment. Securing the confidence of investors requires reliable data on the effectiveness of interventions to encourage biodiversity, explained Jochen Kluve of KfW and Humboldt University Berlin. Kluve illustrated his points by presenting data on efforts to preserve global forests. KfW Bankengruppe is seeking to augment transparency in this area by developing a geographical database of biodiversity. Gerrit von Zedlitz of the University of Mannheim showcased trends in corporate reporting with a view to biodiversity. His analysis of the sustainability reports issued by the 360 largest listed European companies between 2020 and 2022 shows that biodiversity reporting is becoming more prevalent. However, the information provided tends to qualitative, and the application of technical terminology is inconsistent.

The workshop participants were in unanimous agreement that this interdisciplinary forum for exchange should be continued at the House of Finance.