Many billions of euros in investments will be necessary to attain the Paris climate objectives. Experts from the financial sector give advice to Brussels. Now that the financial crisis is more or less behind us, a new storm is brewing for the financial sector. Banks, investors and insurers must prepare themselves for the consequences of the energy transition.
Investments in fossil energy can quickly lose their value. And financial institutions will have to play their part in contributing to the achievement of the Paris climate goals of 2015.
At the request of the European Commission, a broad group of experts is giving advice this year on a ‘sustainable financial model’. The group includes bankers, investors, stockbrokers and environmental and other organizations. Last week saw the release of their interim report Financing a sustainable European economy, with a wide-ranging call for reactions. At the end of the year the group will submit recommendations to the Commission.
A sample from the ideas: there is a need, at European level, to establish what exactly sustainable investments are. Pension funds must provide more clarity about the green and social content of their investments. And EU-supervisors must pay more attention to risks from climate change, for example for insurers who have to pay for climate damage.
According to the report a ‘transformation’ is necessary in the financial sector. Over the next two decades, €180 billion a year extra in sustainable investments will be needed in order to reach the climate goals.
“The financial model is a reflection of the economy,” says Frank Elderson, director of pensions oversight at DNB, the Dutch central bank, who sat as an observer in the consultations, in his office in Amsterdam. “If the economy becomes greener – and it is crucial that it should – the financial sector will change with it.”
“There is great demand for investments in renewable energy, among participants in the funds for which we invest,” adds Claudia Kruse. As head of sustainable and responsible investment with pension manager APG she is a member of the expert group. “The trade-off is no longer good investments against green investments. You can make investments that both perform outstandingly AND are green.”