Guest article by Thomas Buschmann,
Chairman of the North Rhine-Westphalia Banking Association,
published in the Börsen-Zeitung Special on 27/09/2023
Banks are assets in the sustainable and digital transformation
Is Germany "the sick man of Europe" again? This question was raised by the British weekly newspaper "The Economist" a few weeks ago, sparking a broad debate in the country. Here in Germany, too, the negative headlines seem to outnumber each other almost daily. Yes, we have structural deficits that are holding back our economy. We could become the sick man of Europe if we don't finally tackle these structural deficits now and continue to work our way towards the end of the world. Because the situation is nowhere near as hopeless as it is sometimes portrayed. What our country still needs is more confidence and optimism - as well as investment, innovation and the courage to embrace change.
The financial centre of Düsseldorf is the best example of a region that is also well positioned because it actively shapes change through constant transformation. The capital of North Rhine-Westphalia is one of the most successful business centres in Europe. Its attractiveness is based on factors such as its favourable location in the heart of Europe with a strong catchment area extending from the Rhineland to the Ruhr region, the highest density of companies in Germany with a high level of internationality and, last but not least, the cultural, sporting and leisure activities on offer. The world-renowned Invictus Games have just come to an end and have emphasised the city's reputation as a sports city.
The economic figures speak for themselves: almost 38,000 companies and over 550 start-ups are based here, with a diverse mix of industries that creates synergy effects, innovative capacity and - as the pandemic has shown - resilience to crises. Germany's sixth-largest city is the most dynamic location for Chinese companies and home to the largest Japanese business community in Europe. Over 4,600 companies from 150 nations are based here, 40% of all foreign direct investments in North Rhine-Westphalia are made here and more are in the pipeline. As a trade fair location, the city on the Rhine is also a top destination for over 20 leading international trade fairs.
The reasons for this economic strength lie in the constantly evolving diversification, which brings advantages in the competition between business locations for investment, job creation and the resulting tax revenues and ensures long-term stability. Düsseldorf's strengths are known to lie in its international character, its quality of life and its capacity for innovation. Düsseldorf's marketing company has developed a brand campaign that ascribes these characteristics to the "personality" of Düsseldorf: Sociable, interested, expressive, confident. This is probably an apt description, as Düsseldorf's outstanding locational advantages are repeatedly recognised in many places. Düsseldorf ranks 6th among the world's most attractive cities and is the most popular destination for expats in Germany. Its global character is reflected in its 3rd place in the fDi Large European City Ranking Top 10 "Economic Potential" and 4th place in the "Business Friendliness" category.
From this, the city has formulated a future strategy with six fields of action: One focus is on "Innovation/Tech", another on "Retail" (with the "lighthouse" Königsallee), then "Fashion, Beauty and Lifestyle", as well as "Green and Smart Düsseldorf" and finally "Internationality". In order to make the city fit for the future, a lot more is needed in addition to the aforementioned location factors: recognising trends at an early stage, forward-looking planning, the courage to make decisions and, above all, a good network of stakeholders. This is a good basis when, as is the case now, the economy and forecasts are clouding over and challenges such as high energy prices or the shortage of skilled labour have to be overcome. Düsseldorf has actively embraced change and has always been able to adapt - even in times of crisis.
The fact that this strategy is already beginning to bear fruit is reflected in the IHK economic report: Düsseldorf's business community is taking a less negative view of the situation. The business situation is stable, the situation is not good, but satisfactory. Trade has "actually not come through the crisis badly", tourism and trade fair visitors have returned, and some luxury segments are doing well. The number of start-ups in Düsseldorf has remained stable despite the nationwide negative trend. This also attracts investors; the state capital is an attractive, functioning financial centre. Around 50 private banks are members of the NRW Banking Association, including numerous major global banks. They represent a business volume of over 240 billion euros, making Düsseldorf one of the leading banking centres in Germany. The international character is also evident here: Around half of the credit institutions based here belong to foreign parent companies, and around 90 per cent of export financing is channelled through the accounts of private banks.
Next, Düsseldorf wants to tackle the transformation towards more digitalisation and sustainability. This is the key to the city's future viability and competitiveness. This is not just about greater sustainability; topics such as housing and mobility are also on the agenda. The banking industry has a special role to play here, as it has been given a mandate by the EU to implement the taxonomy that came into force at the beginning of the year. The investment volume for NRW alone is now estimated at over 80 billion euros per year. This is a task that the banks will not be able to accomplish alone; close co-operation between politics and business is necessary here. Politicians must create business-friendly framework conditions, including the acceleration of authorisations, more planning security and a simplification of bureaucracy and regulation. The economy is strong enough to finance many things on its own, but it needs more private investors and the capital market - for example via the Düsseldorf Stock Exchange.
Our member institutions are currently in the process of implementing the taxonomy requirements in their credit assessment processes and collecting the data required for the new ESG rating from their corporate clients. The focus here is on small and medium-sized companies, as the need for advice is higher here and entrepreneurs require more support. The German Bankers Association recently published an initial catalogue of KPls and sample questions on sustainability aspects as a contribution to the debate on the basic data requirements that are essential for banks. It is now high time for all companies to get to grips with the taxonomy.
The banking industry entered into a dialogue with the state government at an early stage on how the transformation in NRW can be driven forward more quickly and easily. The result is a package of measures that is unique in this form in Germany. At its centre is the financial centre initiative Fin.Connect.NRW, which aims to strengthen networking between stakeholders such as companies, the banking industry, insurance companies and other players and investors. This platform is intended to provide the players with customised financing instruments for their respective business models.
Additionally, there is an information campaign to increase awareness of the topic and to inform SMEs in particular about the necessity as well as financing solutions of the taxonomy, which the Association of Banks NRW has already launched together with the Chamber of Commerce and Industry NRW, Energy4Climate, and NRW.BANK. With NRW.BANK, funding advisors from private banks are developing corresponding funding instruments aimed at supplementing existing funding programs with ESG requirements. The "SME Innovative & Digital" (MID) program is intended to be complemented by sustainability vouchers for the use of consulting services in the area of sustainable business models. Finally, in NRW, additional investment incentives are to be examined through securing transformation financing for SMEs and larger SMEs, for example through liability exemptions and guarantees.
The digital and sustainable transformation offers a great opportunity for NRW to remain future-proof and competitive. The economy will benefit from this structural change, with more efficiency and synergies, better resilience and reputation, lower costs, and higher returns. These advantages need to be emphasized more. And also, that there is no alternative. The foundations have been laid, the economy must now focus on its strengths and invest to unleash innovations. Politics must lead the way. Düsseldorf sets an example of how much can be achieved through commitment and local collaboration.
PDF Download: Article in Börsen-Zeitung Special (27/09/2023)
