Sustainable Finance Wrap-up Q1 2022: How Is Sustainability Developing in the Finance Sector?
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Whether climate-neutral energy generation, e-mobility, or the reduction of greenhouse gas emissions, sustainability innovations are the drivers for a better and more environmentally friendly future. First, however, these ideas and projects need to be financed.
This is where sustainable finance comes into play. Under the term climate finance, national and international governments are taking action to counteract climate change. Sustainability is also increasingly becoming an issue in the financial sector, e.g. through internal reduction measures, green bonds etc.
Penta is a part of this movement. We constantly work on reducing our emissions and have been a carbon-neutral company since 2020, thanks to internal reduction measures and the support of sustainable funding projects. While taking concrete steps to tackle the problem is crucial, it’s also important to talk about climate change and its consequences and to show how businesses can position themselves in a more climate-friendly way.
With that in mind, we’ll start publishing a quarterly sustainable finance wrap-up from Q1 onwards. It’ll summarise what’s happening and what’s new in the field of climate and sustainable finance, bringing all the knowledge together in one central place. Read on to find out what has happened so far in the first quarter of 2022.
Retrospect: EU Emissions Trading 2021 brought record revenues
In the European Emissions Trading Scheme, EU countries can buy or sell so-called CO2 certificates depending on the use and demand in their national industry. In 2021, this has flushed revenues of €5.3 billion into Germany’s climate funds, which corresponds to a doubling of revenues compared to 2020.
These revenues directly flow into the Energy and Climate Fund (Energie- und Klimafonds or EKF), which supports various climate protection measures, such as investments in energy efficiency, renewable energies, and national and international climate protection projects. (Source: energiezukunft.eu).
New reporting obligation on environmentally sustainable economic activities
The EU Commission wants to achieve a completely climate-neutral Europe by the year 2050. As an effective instrument for this, the EU Taxonomy Regulation was enacted, which already partially came into force on January 1st, 2022. It introduces classification criteria in the EU to help assess the sustainability of economic activities and investments. As a result, two of the six goals of the EU Taxonomy Regulation have already been actively addressed since January: climate protection and adaptation to climate change.
From the beginning of the year, a reporting obligation applies to all companies within the EU area that were previously already obliged to report non-financially according to the CSR Directive and fall under the reporting obligation according to CSR-RUG. The mandatory report is intended to show the proportion of corporate key figures such as sales revenues as well as investment and operating expenses that are governed by ecologically sustainable components.
From January 1st, 2024, the obligation will then follow for all non-financial companies and financial companies that fall under the extended reporting obligation according to CSRD (Sources: International Banker, IB Academy, Deutscher Nachhaltigkeitskodex).
ECB Banking Supervision conducts stress test on climate risks in banks
The European Central Bank (ECB) conducted a so-called stress test on the potential climate risks for banks on January 27th, 2022. With this test, the ECB wants to gain clarity on the extent to which banks and financial institutions are currently and in the future able to deal with financial and economic shocks that could arise as a result of climate change.
The ECB intends to publish the results of this test in aggregated form in July 2022 (we’ll keep you posted on that). The implementation will in no way affect the capital of the tested banks. (Source: ECB Banking Supervision).
Sustainable stock market index launched in Singapore
In mid-March, the stock exchange operator Singapore Exchange (SGX) and the Oversea-Chinese Banking Corporation (OCBC Bank) announced that they have jointly established a new stock market index that tracks and rates 50 companies listed in Singapore or worldwide based on their carbon footprint. This is called the iEdge-OCBC Singapore Low Carbon Select 50 Capped Index.
The index was developed by SGX as part of its sustainability index product suite, together with product specialists from OCBC Bank. It applies a methodology which excludes companies that are heavily involved in fossil fuel industries. In contrast, the best companies are selected based on their Scope 1 and Scope 2 emissions per unit of revenue and listed according to the stock exchange (Source: The Business Times).
Not quite sure what the three scopes of carbon emissions are? Find the answer in our article about sustainable businesses.
Looking ahead: green bonds could reach $1.5 trillion this year
According to a recent forecast by S&P Global Ratings, so-called green bonds – fixed-income financial instruments used to finance projects with a positive impact on the environment – could crack the $1.5 trillion mark in 2022. More sustainability-linked and green bonds are expected internationally this year, which would further drive the positive development. Sustainability-linked bonds are also expected to show the strongest growth (Source: Der Treasurer).
Russia-Ukraine conflict creates uncertainties about green investments
According to Bloomberg data, ESG funds had at least $8.3 billion invested in Russia before the war in Ukraine began on February 24th. Today, the exact value of these investments is unknown, as the market in Moscow remains closed and Russian securities are effectively untradable due to sanctions.
Although this is a comparatively small portion of the estimated $2.7 trillion invested in sustainable funds overall, the current situation creates great uncertainty about the future of these ESG investments. (Source: Bloomberg)
Conclusion: always keeping an eye on developments
The predominantly positive news shows how the finance and banking sector can drive sustainable change. We’re still at the beginning of a long journey, but if companies and scientists can rely on financial support, we may soon achieve the innovations needed to reduce emissions and slow down climate change.
In addition to our internal reduction efforts, we at Penta also want to share knowledge on climate finance, green banking, and sustainable finance policies. We hope that this quarterly wrap-up has given you a good overview of developments over the past months.
Please note that this article has been written to the best of our knowledge. Further and more in-depth information on the individual news items can be found in the sources mentioned.
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