IDEAS TO SHAPE THE FUTURE

As the world pays ever closer attention to the climate emergency, a wave of positive change is sweeping through the financial industry. The result: I am convinced that by the end of this decade Europe’s banks will be fully established and embedded as central drivers of the transition to a sustainable future.

Deutsche Bank and others have already made sustainability a strategic pillar and helped to propel Europe into a strong lead in key areas of sustainable finance such as green bond issuance. Clients of all shapes and sizes are also increasingly committed to sustainable financing, whether to buy a home with a green mortgage or finance factories with an Environmental Social & Governance (ESG) loan whose terms are linked to reductions in CO2 emissions.

This increasing demand reflects a starkly changing economic reality: European companies have embarked on their sustainability journey. Much of the focus and environmental scrutiny is on companies and sectors which emit the most CO2, and rightly so. But I’m confident we are moving in the right direction because these companies are engaging with and requesting sustainable solutions. Many European utilities are leading the way in building a clean energy infrastructure, and many oil and gas companies are seeking to diversify their energy portfolios. Certainly, we need much stronger commitment but far more CEOs’ doors are open than closed.

At the same time, the growth in green bonds and similar securities is underpinned by surging demand from investors eager to embed ESG into their portfolios.

As awareness, expectation and demand for sustainable finance surges, banks continue to orient themselves around the move to a resource-efficient economy. Through strategic programmes of staff training, refining governance and re-allocating balance sheets, we will solidify our position as facilitators of the transition. In an ever-evolving macro environment, this necessarily includes ESG-specific risk management systems, next to innovative products.

However, to secure Europe’s position longer term, we need to look beyond banks.

Fundamentally, Europe has a capital problem and risks losing its lead in sustainable finance if it continues to rely on banks or governments as the principal source of finance. We must therefore urgently harness the power of investment through a Capital Market Union (CMU), without which we cannot raise the estimated one trillion euros required per year for the green transition – and without which there can be no Green Deal.

Alongside we need more supportive regulation of sustainable finance. The EU was an early mover with its Taxonomy process, defining and standardising environmentally sustainable economic activities. But we need to keep regulation simple and practical: the EU ESG framework has around 2,000 pages of rules and guidelines.

Sustainable finance is an area where Europe undoubtedly leads the world and there is a clear path to expanding this if we act decisively and with a sense of urgency at all levels. I am certain banks stand ready to be part of the solution and facilitate the green transition with experience, expertise and commitment to make this a long-term European success story.

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