Digital library on sustainable finance
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In this white paper, Bertelsmann Stiftung takes stock of where families and family offices stand when it comes to impact investing. They identify a number of both perceived and real barriers in the shift to impact investing and lay out specific recommendations for how families and family offices may overcome these barriers. Their recommendations include communication within the family setting, building one’s internal team, the development of a solid strategy, improved open communication with peers, selection of good supporting advisor(s), pooling of resources and management of transaction costs, and finally, the willingness to get started.
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White Paper_Increasing Family Office Engagement in Impact Investing_July2020 (pdf 581.3 kB)Summary
This report examines 75 of the most influential asset managers worldwide on responsible investment governance, climate change, biodiversity and human rights. The asset managers are scored based on their performance on responsible investment governance, human rights, climate change and biodiversity.
The results showed that the majority of asset managers demonstrate a substandard approach to responsible investment
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This report sets out the Technical Expert Group on Sustainable Finance (TEG)'s final recommendations to the European Commission. It contains recommendations relating to the overarching design of the Taxonomy, as well as guidance on how users (investors and companies) of the Taxonomy can develop Taxonomy disclosures. It contains a summary of the economic activities covered by the technical screening criteria.
The final report is supplemented by a Technical Annex and Taxonomy spreadsheets.
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Taxonomy: Final report of the Technical Expert Group on Sustainable Finance - EN
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This Technical Annex supplements the TEG final report on the EU taxonomy. The Technical Annex contains a full list of revised or additional technical screening criteria for economic activities which can substantially contribute to climate change mitigation or adaptation (including assessment of significant harm to other environmental objectives), and methodological statements to support the main recommendations made by the TEG.
The TEG final report on the EU taxonomy and the Technical Annex are supplemented by Taxonomy spreadsheets.
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Climate-related risks continue to potentially endanger the stability of the financial sector, but they are only marginally addressed by Basel III capital requirements. This situation gave rise to the discussion about using capital requirements to address both the climate investment gap and climate-related risks. For several years now, the idea of using capital requirements for environmental purposes has been gaining ground. The debate has gained more attention in Europe with the mandate given early 2019 by the Commission to the European Banking Authority (EBA) to report on the possibility of introducing a prudential treatment in accordance with environmental and social objectives.
However, before this can happen, several questions about such requirements need to be resolved, particularly as regards the instrument to be used and the objective to be achieved. This report looks at these questions and aims to show the advantages and disadvantages of different approaches, in particular a Green Supporting Factor (GSF) or a Brown Penalizing Factor (BPF).
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Integrating Climate-related Risks into Banks’ Capital Requirements - EN
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The fifth edition of the Global Green Finance Index (GGFI 5) was published on 24 March 2020. GGFI 5 provides evaluations of the depth and quality of the green finance offerings of 67 major financial centres around the world. The GGFI serves as a valuable reference into the development of green finance for policy and investment decision-makers.
The GGFI is updated and published every March and September. The GGFI is compiled using 135 instrumental factors. These quantitative measures are provided by third parties including the World Bank, the Economist Intelligence Unit, the OECD and the United Nations. The instrumental factors are combined with financial centre assessments provided by respondents to the GGFI online questionnaire.
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On 9 March 2020, the Technical Expert Group on Sustainable Finance (TEG) issued further guidance on in relation to its recommendations for an EU Green Bond Standard (EU GBS), by publishing a Usability Guide. This guide offers market actors guidance on the use of the proposed standard and the set-up of a market-based registration scheme for external verifiers.
Recommendations and a model for an EU GBS were published by the TEG in its report June 2019 (see full report or 2-page summary). The TEG proposes that the Commission creates a voluntary, non-legislative EU Green Bond Standard to enhance the effectiveness, transparency, comparability and credibility of the green bond market and to encourage the market participants to issue and invest in EU green bonds.
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The Rate the Raters reports attempt shed light on how ESG ratings are being used, to better understand the universe of external sustainability ratings and to influence and improve the quality and transparency of such ratings.
The 2020 report shares insights from 17 in-depth interviews with investors, supplemented by a survey of 25 investors, highlighting their views on current ESG ratings and how they use these ratings to evaluate ESG topics. It includes findings on where investors get ESG information, how often they use ESG ratings, investor critiques of ESG ratings and perceptions of specific ratings. The report also includes specific recommendations for companies on how to approach the ESG ratings landscape, get the most out of ESG ratings and improve ESG data disclosure.
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Rate the Raters 2020: Investor Survey and Interview Results - EN
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Direct tax incentives for individual investors are a policy measure governments can use to generate funds to develop the sustainable business sector. Existing research demonstrates that many investors see sustainable businesses as less profitable, direct tax incentives could contribute toward changing behaviour and then beliefs. This article aims to provide the legal perspective, particularly demonstrating the rationale and feasibility from the perspective of fundamental principles of taxation, EU state aid rules and Swiss legislation. The conclusion is that, depending on how such tax incentives are structured, they can be compatible with both.
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This report investigates the extent to which climate-related financial risks are part of the fiduciary duty of financial service providers in Switzerland under current law. The analysis was conducted by MME based on a mandate by WWF Switzerland.
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Klimawandel: Treuhänderische Pflichten der Finanzdienstleister - DE
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This report covers some of the major trends that will shape sustainable investing in the years to come. While assets under management with an environmental, social and governance impact (ESG) mandate are growing exponentially, there are some notable challenges ahead, including how to integrate sustainability considerations in passively managed portfolios tracking non-ESG indices and the lack of relevant capacities at financial institutions.
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This survey report examines in detail sustainable investing and its impact on the alternative investment industry. Focusing on hedge funds and institutional investors, together with best practice from the asset management sector, the report investigates how sustainable investing is gathering momentum across the investment universe.
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This report published by WWF Switzerland and PwC Switzerland finds that the financial risks associated with the loss of biodiversity will become increasingly important in 2020. As climate change and the loss of biodiversity mutually reinforce each other, decision-makers face a huge challenge to respond to this double crisis, as the risk of financial market instability significantly increases.
The report suggests a typology of four financial biodiversity-related financial risks: physical, transition, litigation and systemic risks. The report further highlights what can be learnt from the discussions around climate-related financial risks, provides a framework on how to integrate biodiversity losses into the classical risk framework of financial institutions and also includes recommendations to financial regulators/central banks, financial market players and states/international organisations.
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Nature is too big to fail. Biodiversity: the next frontier in financial risk management - EN
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The second edition of the State of Impact Measurement and Management Practice reflects the increased sophistication and maturation of impact measurement and management (IMM) practices since the release of the survey’s first edition in 2017.
Based on data from 278 impact investors—including 109 two-year repeat respondents—this report provides the most comprehensive view of how impact investors assess their social and environmental impact, and the trends that have shaped IMM practices in the past two years. The report indicates that impact investors universally agree that IMM is imperative and it underscores how investors are increasingly focused on driving greater impact results.
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The State of Impact Measurement and Management Practice: Second Edition - EN
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This paper aims to assess the understanding of environmental, social and governance (ESG) considerations within the banking context and examines the current market practices in this area. To that extent this paper sets out the various definitions of ESG factors and also sets out how these then are converted into and treated as ESG risks. This paper relies upon the lessons learnt from a survey developed by the EBA to gain insights into current market practices with regard to credit institutions’ approach to incorporating ESG considerations into their frameworks.
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This report reviews the contributions, or lack thereof, of the world’s 25 largest asset managers to hold large U.S. energy and utility companies accountable to combat climate change and the risks it poses to long-term shareholders and other stakeholders. With increasing concentration in the investment industry, these 25 firms collectively manage over $38 trillion and account for over 51% of the assets managed by the 400 largest asset managers worldwide. The report comes to the conclusion that the world's largest asset managers often used their shareholder power to undermine global investor efforts to hold recalcitrant fossil fuel and utility companies accountable for their failures on climate and their irresponsible lobbying.
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Climate In The Boardroom: How Asset Manager Voting Shaped Corporate Climate Action In 2019 - EN
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The Institute of International Finance (IIF) and European Banking Federation (EBF) conducted a joint survey of their members. The survey of 70 financial firms around the world, with total assets of nearly $40 trillion, finds that the streamlining of measurement and disclosure frameworks, and increased international collaboration, are key to strengthening the climate-related risk analysis and reporting toolkit.
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This paper uses firm-level data on green bonds issued by public companies, to examine companies’ financial and environmental performance following the issuance of green bonds. The author finds that the stock market responds positively to the announcement of green bond issues, and also documents a significant increase in environmental performance, suggesting that green bonds are indeed effective in improving companies’ environmental footprint. However, these findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market.
This paper was published in Environmental and Energy Policy and the Economy 1, no. (2020): 95-128.
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Green Bonds: Effectiveness and Implications for Public Policy - EN
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A challenge that companies (including financial institutions) face in demonstrating long‑term value creation is the absence of a generally accepted international framework for the reporting of material aspects of ESG and other relevant considerations for long‑term value creation. This contrasts with the well‑established standards that exist for reporting and verifying financial performance.
The subsequent report therefore proposes a common, core set of metrics and recommended disclosures that can be used to align mainstream reporting and, in so doing, reduce fragmentation and encourage faster progress towards a systemic solution, perhaps to include a generally accepted international accounting standard. The metrics and disclosures proposed have been organized in four pillars that are aligned with the SDGs and principal ESG domains: Principles of governance, Planet, People and Prosperity.
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Toward Common Metrics and Consistent Reporting of Sustainable Value Creation - EN
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This survey assesses the current state of alignment of listed European companies’ economic activities and banks’ lending activities with the EU Taxonomy for sustainable finance.
Commissioned by the German Federal Ministry for the Environment, the survey also aims to to identify potential challenges in and potential solutions for measuring taxonomy alignment, raise awareness and build capacity regarding the EU taxonomy. The results help to inform the ongoing discussions on the EU Taxonomy at the EU level and to maximise the relevance and usability of the EU Taxonomy for key stakeholders, in particular listed companies and banks.
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This publication is a collaboration between climate economists, climate financial risk modellers and financial regulators, and applies the CLIMAFIN framework described in Battiston at al. (2019) to provide a forward-looking climate transition risk assessment of the sovereign bonds’ portfolios of solo insurance companies in Europe. It was published in the European Insurance and Occupational Pensions Authority (EIOPA) December 2019 Financial Stability Report.
The authors consider a scenario of a disorderly introduction of climate policies that cannot be fully anticipated and priced in by investors. They find that the potential impact of a disorderly transition to low-carbon economy on insurers portfolios of sovereign bonds is moderate in terms of its magnitude, but non-negligible in several scenarios. Thus, climate policy scenarios should be regularly monitored and assessed given the importance of sovereign bonds in insurers’ investment portfolios.
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2019 Thematic Review - Climate risk assessment of the sovereign bond portfolio of European insurers.pdf - EN (pdf 512.1 kB)Summary
This publication, part of the SSF Focus series, provides an overview and status report of five of the key EU sustainable finance initiatives most relevant to Swiss financial institutions. The publication also contains a section on how Swiss institutions may be affected by the EU legislative measures, providing suggestions on a possible course of action. Additionally, the Focus looks at Swiss policy-related developments occurring in the area of sustainable finance.
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Focus: EU Action Plan on Sustainable Finance. Effects on Swiss Financial Institutions. - EN
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This scientific article (in German) puts forward the awareness of the issue of climate change has risen markedly in recent years, there are still open questions with regard to what legal consequences climate change entails - especially from the investor's point of view.
In the authors' view, institutional investors are already obliged under current law to take appropriate account of climate risks and opportunities as part of their fiduciary duty of care. They believe that increased self-regulatory efforts in the form of detailed industry recommendations on climate risks would be welcome, with the need for regulation in Switzerland to remain to be assessed. The authors underline that the transition towards a decarbonised society, including the climate compatibility of financial flows, to which Switzerland has committed itself in accordance with the Paris Agreement, is an urgent endeavor.
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Der Klimawandel und die Finanzmaerkte (pdf 858.8 kB)Summary
The Partnership for Carbon Accounting Financials (PCAF) is an industry-led initiative that helps financial institutions assess and disclose their indirect greenhouse gas (GHG) emissions related to their financial activities. This document is the first version of the Facilitated Emissions Standard. It provides detailed methodological guidance for the measurement and disclosure of GHG emissions associated with capital market transactions.
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From late 2018 to early 2019, the Center for Sustainable Finance and Private Wealth (CSP) at the University of Zurich conducted its third round of research on the sustainable investing (SI) capabilities of private banks.
The report examines the sustainable investing vision, offering, and services of 20 European banks and features special chapters on the impact of the EU Action Plan on Financing Sustainable Growth and private banking and its alignment with international environmental goals. The authors found that in comparison to 2018, banks’ offerings have improved in terms of both range and depth.
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