Germany faces growing risks and high costs if it does not revamp its financial system to focus more on climate change and sustainability, according to a new report by the World Wildlife Fund and finance groups including Deutsche Boerse. The study faulted German conservatives and Social Democrats, who are considering renewing the 'grand coalition' that has ruled Europe's largest economy since 2013, for failing to even address 'green finance' in their blueprint for a new government.
"This is not about adding a green brick to the financial tool kit. It's about the fundamental climate and environmental compatability of all financial structures and finance flows," said Joerg-Andreas Krueger, a top WWF official in Germany. The report, prepared by WWF, the Frankfurt School of Finance & Management and the Hub for Sustainable Finance Germany, which includes Deutsche Boerse, said Germany should follow the lead of other European Union countries like France, Sweden and Britain -and even China - in using their capital markets to help encourage sustainable investments and work toward climate goals.
Failing to take a holistic approach portends significant risks for investors and citizens in coming years, given the high costs involved in meeting ambitious global targets for reducing carbon dioxide emissions set under the Paris climate accord. The report urged introduction of climate stress tests to avoid the loss of investments, or so-called stranded assets, in areas such as coal technology.
Such investments will lose value as the global community implements the Paris accord and moves away from fossil fuels, the report said, underscoring the fiduciary responsibilities of pension funds and other institutional investors. A systematic approach would also help steer investments into promising areas of the renewable energy market instead of continuing to encourage funding in fossil fuel-related projects.
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