The global megatrends of demographics, decarbonisation, digitalisation and de-globalisation are impacting the industrial region of NRW. In order to successfully manage structural change, companies in NRW must invest 98 billion euros annually in decarbonisation and digitalisation. The challenges are great, also in view of the fact that new technologies need to be developed and implemented.
Banks must not only finance the transformation of companies, but also manage the credit risks resulting from the transformation. As a result, measuring the sustainability of companies and transformation risks has become increasingly important for banks. This is because banks need data from transforming companies for their risk management. The Fin.Connect.NRW specialist event on 29 August 2024 focused on the data required for this, how transformation risks are managed and the consequences for corporate financing.
The workshop served to highlight and discuss the consequences for companies resulting from the climate-neutral transformation of banks.
Niklas Taft from the German Economic Institute (IW) gave the first presentation on measuring the emissions financed by banks. The presentation was based on a study conducted together with Markus Demary and Anna-Maria Hagenberg on the emissions dependency of bank loans and the associated risks arising from the transformation of companies towards a carbon-neutral economy. Mr Taft began his presentation with an overview of the Partnership for Carbon Accounting Financials (PCAF) classification of emissions in Scope 1 to 3, after which he explained the methodology of the study. The authors defined the absolute carbon credit burden of a banking group in a sector as the product of the greenhouse gas emissions of a sector with the credit volume of the banking group in the sector. If this key figure is set in relation to the total credit volume of the banking group, the relative emission credit burden is obtained. The analysis of these key figures for the various banking groups and industries in Germany revealed that the financed emissions are not concentrated in individual banking groups or size classes. Instead, industry-specific transformation risks exist in all banking groups, as Niklas Taft illustrated in his presentation using charts.
The second keynote was given by Heinz-Gerd Stickling from zeb with the title ‘ESG transformation: Europe's banks put to the test - between ecological awakening and business reality’. In a Europe-wide ESG survey, zeb analysed the challenges faced by banks in the sustainability transformation. The five thematic blocks or core action areas of the study included competitive positioning, net zero ambition and governance, implementation of risk management, data and methodology frameworks, and business opportunities. Aspects ranging from the strategic anchoring of ESG to its use in sales were therefore taken into account. Five key findings and core statements were derived from the survey:
- A good ESG reputation is at least as important to 97% of banks as solid business figures.
- 44% of all institutions have not yet defined a net zero target for their own credit portfolio.
- Less than half calculate ESG risks on the basis of existing risk models or specially created ESG risk models.
- A lack of data availability is the biggest hurdle for 75% with regard to good ESG data management.
- 56% of all banks surveyed have not yet made any ESG-related price adjustments.
Thomas Pennartz from Kreissparkasse Köln concluded the keynote session with a presentation on decarbonisation from the perspective of the savings banks. Right at the beginning, he emphasised the savings banks' commitment to sustainability and highlighted the associated challenges. The emerging regulatory requirements necessitated the immediate creation of a comprehensive data model. For this, the savings banks needed detailed sustainability information from their customers. However, Mr Pennartz used examples and experience to illustrate that the preparation and processing of data within their own company was a major challenge. He explained how the savings banks support their customers throughout the entire process, from raising awareness, providing guidance and finding solutions through to providing support with financing. For example, nawisio was developed as an all-in-one software solution for sustainability management, reporting and climate accounting within the company.
Furthermore, ProEco Rheinland, a joint venture of all 27 Rhineland savings banks, was founded to promote transformation financing and sustainable construction.
The ensuing discussion centred on the challenges of fully converting the economy's production processes to sustainability and stimulating sufficient investment and financing for this. The tenor of the discussion was that this requires a broad financing mix of bank financing, mezzanine products and subsidies. In addition, liability exemptions and advisory services are important to ensure that the transformation can succeed for the many companies in the country. Only with a better mix of different instruments will companies once again be prepared to take higher risks and invest more in the transformation. In the view of many participants, entrepreneurs must primarily be offered stronger incentives.
