Your expert for questions
Ullrich Hartmann
Partner, Head of Sustainable Finance at PwC Germany
Tel: +49 69 9585-2115
Email
Standards for a sustainable financial economy
Before long, binding climate protection regulations will be imposed on the financial sector under the EU Action Plan. Our experts can advise you today on how to comply with these new rules and how to formulate a sustainable business strategy. That way, you can avoid environmental risks and seize opportunities for sustainable development.
"Ecological and political turmoil is going to fundamentally change the financial sector. Companies which are prepared to adapt will not only be doing their part to realise European climate protection goals, they will also be able to pioneer new business areas and improve their own reputation."
Webcast-Series – Sustainable Finance: Imagine the Future
Companies are faced with the central task of aligning their business structures not only to economic but also to ecological sustainability. In our webcast series, we take a look on what the new challenges mean in practice and how they can be mastered.
Sustainable finance in short: What is it
Background
Sustainable finance encompasses all activities by financial service providers that aim to reduce harm to the environment and climate, to promote social engagement and to encourage sustainable corporate governance. The Paris Agreement and the EU Action Plan derived from it set out concrete sustainability goals for the financial sector and thus represent a cornerstone of sustainable finance. Sustainable finance means that in the future, capital will flow towards more sustainable investments, environmental risks will be taken into greater account and transparency will be encouraged. In this way, the financial services sector is meant to support the transformation of the overall economy and guide it towards sustainability.
Implementation
This vision will be realised by making changes to disclosure obligations, MiDIF II and the Insurance Distribution Directive (IDD), as well as by introducing a host of new rules and regulations such as a label for green financial products, a standardised EU classification system, new EU benchmarks and various EU standards for non-financial reporting.
What's next
The regulatory framework will set the course. Financial service providers will need to work to bring their economic objectives into harmony with the new rules and regulations. A challenge, not only where a company's business with clients is concerned, but also its internal organisation and corporate culture. The climate crisis and the coronavirus pandemic are going to change the business world so drastically that banks and insurers will also be forced to make significant changes to their business models. Financial institutions therefore need to go beyond the regulatory minimum. Only those companies which take a holistic approach – starting with their own strategy – will be able to stand out from the competition and pioneer new business areas.
UN and EU: driving sustainable development
- Regulatory background
- The EU Action Plan
- The European Green Deal
Regulatory background
UN and EU: driving sustainable development
The EU Action Plan is rooted in the political goals set out by the United Nations – specifically the 2030 Agenda for Sustainable Development and the Paris Agreement. Both were adopted in 2015, with various bodies and expert groups convening in recent years to discuss how to implement them. In light of this, the EU has undertaken to meet the following climate and energy goals by 2030:
- Reduction of greenhouse gases by at least 40 percent as compared to 1990
- Increase in share of energy from renewable resources to at least 32 percent
- Increase in energy efficiency by at least 32.5 percent
The EU will be required to invest massive sums of money to achieve these goals. According to the European Investment Bank, the transformation of the energy, transport, water and waste sector is going to cost roughly EUR 270 billion a year. The financial sector – which has a global volume of more than EUR 100 trillion – is going to have to play a bigger part in financing these sums in the future. The main task is going to be to focus on steering these funds towards sustainable investments.
The EU Action Plan
The role of the financial sector: more money for climate protection
Under the leadership of the European Commission, an action plan has already been developed for the financial sector. That plan focuses on three central sustainability goals:
- Reorienting capital flows towards sustainable investments
- Giving due consideration to and managing sustainability risks
- Promoting transparency and long-termism
The EU Action Plan will be implemented in stages over the coming years through several European legislative initiatives. However, we have already seen the first indications of how these initiatives will take shape. Both MiFID II and the IDD will be amended to include key sustainability aspects to be considered when making investment recommendations. In addition, there will be certain new rules and regulations.
The three legislative proposals below have been mooted as a core element of the EU Action Plan:
- Taxonomy Regulation: Introduces a uniform classification system to assess sustainable economic activities based on largely quantitative criteria
- Disclosure Regulation: Expands disclosure obligations in connection with investment decisions and their environmental and social impact
- Benchmark Regulation: Introduces the "EU Climate Transition Benchmark" and the "EU Paris-aligned Benchmark" as well as new ESG factors for index providers
The German federal government has already expressed its clear support for the EU's proposals. The aim is to make Germany a leader in sustainable finance. Both the creation of a "Green Cabinet" and the issuance of concrete recommendations by the federal government's Sustainable Finance Council underscore this commitment.
And BaFin has also already published a number of articles and papers on this matter. The regulatory requirements arising in connection with the EU Action Plan will have far-reaching implications for the business activities of all financial market participants. Although it is not possible at the moment to know just what these implications will be, banks and insurers should now be grappling with those changes that are already foreseeable. PwC's sustainable finance experts can help you to develop and implement the relevant measures.
The European Green Deal
Roadmap to sustainable growth
Aside from the EU Action Plan, the European Commission has also announced the "European Green Deal", which is also going to have a considerable impact on the financial sector. Although it remains to be seen which rules and regulations will be enacted for the financial markets in connection with the Green Deal, one thing is certain: fundamental change is on the horizon for the European economic system. The Green Deal sets out a roadmap to sustainable growth by reducing atmospheric CO2 by at least 50 percent by 2030 (the current target is 40 percent), enacting a European climate protection law and implementing measures to promote clean energy, a circular economy, sustainable mobility, coordinated agriculture policy and biodiversity.
The investment programme has a volume of roughly EUR 1 trillion. However, such an amount cannot be raised without the private sector. That's why the European financial system needs to be reoriented more towards green investment. It also goes without saying that the European Green Deal will entail further, stricter rules and regulations. Sustainable Finance also offers financial service providers the opportunity to prepare for this in good time.
Your situation
How can you leverage the opportunities offered by sustainable finance for your business model?
The EU's sustainability criteria impact every level of a financial institution's organisation, from the management down to the risk management, compliance and customer-facing units. It therefore makes sense to take a holistic approach to the issues raised by sustainable finance. A number of specialist banks have already taken note of this necessity and placed sustainability at the heart of their economic activities. Market participants which do not specialise in sustainability now also need to focus their efforts on the matter.
Financial institutions need to emphasise sales and distribution. That's because financial service providers which have a sustainable sales and distribution strategy are better positioned to keep existing clients and win over new ones. They need to keep a constant eye on different client preferences, however. A holistic approach to sustainable finance improves their own reputation and sets them apart from those firms which are merely engaging in green-washing with the help of an image campaign.
Economic impact: the issues and conflicts you will need to anticipate
Financial institutions that are moving towards sustainable finance are met with the challenge of harmonising ecological and economic objectives.
You will need to come to terms with questions such as:
What are the strategic implications of sustainable finance for my business model, my competitive position, my environment, my internal resources?
How will I have to change my product and service offering and my sales channels in order to break into sustainable business areas?
How will integrating sustainability affect the investment advising processes?
How will environmental risks and opportunities impact the management of the bank as a whole and risk management?
How will sustainability risks affect capital requirements?
How can we fully capture, process and report sustainability data? Do we need help from outside?
How will the coronavirus crisis impact our economic activity?
Does it make sense for system-relevant products to be manufactured around the world? Or would it not be better if we transitioned from globalisation to "continentalisation"?
Which of the many added categories of sustainability reporting do we have to implement, and which ones should we implement voluntarily?
Our sustainable finance experts are happy to assist you with questions such as these. Every day, our consultants encounter potential problems in implementing sustainability requirements, and they understand how economic conflicts can arise and be resolved. Our experience has shown: economic objectives and sustainability requirements complement each other in the long run and can lead to new synergies.
Our services
What we can do for you
Our expertise covers the whole spectrum of potential issues encountered when implementing regulatory requirements; our many years of experience enable us to navigate these issues efficiently. When implementing new regulatory requirements, our clients can count on PwC's holistic approach – from developing strategies through to integrating them into everyday routines.
Over the course of previous projects, we have established a proven approach which can be customised to meet the individual needs of your institution:
Procedure model for project work
- 1. Assistance with positioning
- 2. Impact analysis
- 3. Roadmap and recommendations
- 4. Implementation guidance
- 5. Implementation
1. Assistance with positioning
Description:
- Assistance with development of strategic positioning guidance
- Concept for target strategic model
Client benefit:
- Holistic approach to sustainable finance
- Development of a shared understanding
2. Impact analysis
Description:
- Gap analysis conducted to determine regulatory delta
- Assessment of current status of implementation
Client benefit:
- Clear understanding of target/actual divergence
3. Roadmap and recommendations
Description:
- Development of concrete recommendations
- Prioritisation of identified measures
- Development of a roadmap
Client benefit:
- Initial implications as basis for decision-making
4. Implementation guidance
Description:
- In-depth analysis of affected organisational units and processes
- Translation of defined recommendations into concrete proposals for solutions
- In-depth development of roadmap, with estimate of effort
Client benefit:
- Deeper understanding of need to make changes
- Initial estimate of cost and resources required
5. Implementation
Description:
- Assistance with implementation
- Technical assistance with pre-defined action areas, including regulatory monitoring
- Assumption of project management responsibilities to ensure coordinated, on-time project delivery
Client Benefit:
- Continuous technical assistance
- Access to best practices
- Assistance with project management
Our promise
Our experts will help you identify potential and emerging opportunities offered by sustainable finance and help your firm harness them successfully. That's because it is only possible to stay ahead of the competition and break into new business if you take a holistic view of the EU's sustainability goals – and that's our goal. Together with you, we will shape how sustainable finance is implemented at your firm. Our experts can help you develop bespoke services in the areas of auditing, corporate consulting and tax advice to successfully master the challenges of sustainable finance.
"Sustainable finance is more than merely satisfying regulatory obligations. Ultimately, what we are doing is adapting to changing economic activities, setting ourselves apart from the competition and breaking into new lines of business."
For further insights into sustainable finance
Sustainable Finance and ESG in Asset Management
Sustainable investments play an increasingly important role for asset managers. Whether as a means of setting themselves apart from the competition, improving risk management, opening up new business areas or taking into account upcoming EU regulations – ESG and sustainable finance are the guiding principles of a new and sustainable financial industry.
Growth requires data – including in asset and wealth management
The 22nd CEO Survey for international asset management provides a comprehensive overview of the sector's opportunities and risks from a CEO's perspective.
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Contact us
Martin Weirich
Partner, Sustainable Finance Asset & Wealth Management, PwC Germany
Tel: +49 69 9585-3806
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