Green Finance and the German banking system

Abstract

With the Paris summit on climate change in December 2015 (COP21) nations have agreed to formulate national climate targets. They can only be reached if urgently needed massive real investment projects and adequate measures are undertaken. Although most national climate action plans do no formulate explicitly emission reduction targets for the financial sector, banks, investment trusts et al. have a pivotal role to play in mobilizing private capital and managing carbon risks. International committees like relevant working groups installed by the G7 and the G20 summits mostly use for such purposes the term green finance. National financial sectors differ in their capacities and preparedness to fulfill their roles in green finance. First of all the following survey reports about the capacities and deficits of the German financial sector to cope with the challenges of green finance. The analysis starts with the description of central pillars of the German climate change strategy, i.e. the political and legal framework that is needed to transcript COP21 in national action plans. The report proceeds with an analysis of the Germany's banks as they ought to operate as enabler and risk manager in green finance. In addition a focus is placed on green finance for small and medium sized companies. The most important outcome of the analysis is, that with the exception of the state-owned KfW, some regional public and developing banks and so-called alternative and clerical banks the majority of German banks has not yet integrated workable elements of green finance in their business and product models. The report concludes, that the German financial sectors at present is not well prepared for green finance. There is an urgent need for the implementation of competences and capacities in green finance in Germany.