Guest article by
Thomas Buschmann, Chairman of the North Rhine-Westphalia Banking Association
in the Börsen-Zeitung, special supplement "Wirtschaftsraum NRW"
The Bankentag NRW is something very special: Firstly, it is jointly organized by the four banking industry associations - Bankenverband NRW, Sparkassenverband Westfalen-Lippe, Rheinischer Sparkassenverband and the Genossenschaftsverband - Verband der Regionen - which is unique in Germany. Secondly, it is the most important dialog platform between the banking industry and politics, regulators and supervisors, associations, business and academia, which is taking place for the third time today with around 250 participants once again. Thirdly, the numerous high-caliber panelists deal with current key topics: Five years ago, the focus was on "digitalization", three years ago on "sustainability" and this year, Minister President Hendrik Wüst, Economics Minister Mona Neubaur, Finance Minister Marcus Optendrenk, BaFin President Mark Branson, Bundesbank Board Member Sabine Mauderer and Prof. Michael Hüther from the German Economic Institute, among others, will discuss how the challenges of transformation financing for a more sustainable and digitalized economy can succeed.
There is a lot to discuss again this time. The taxonomy has been in force since the beginning of the year, with clear mandates and tight deadlines for implementation. Banks and savings banks are working flat out to collect data for the new ESG ratings, classify their customers' emission values and implement sustainability criteria in corporate financing. A great deal of persuasion and education is still required here. The topic has now been accepted by corporate customers, and no customer meeting goes by without sustainability being discussed. But there is still a lot of uncertainty and, above all, there is still a lack of impetus for implementation.
The sustainable transformation offers companies many advantages. By switching to environmentally friendly processes, the company can reduce its carbon footprint and save costs. It can position itself as a pioneer in the field of environmental protection and build a positive image. Sustainable management also strengthens resilience against crises, more of which will be climate-related than in the past, and provides preventative protection against reputational risks. Sustainable measures increase the company's attractiveness for customers and employees, who increasingly value environmental compatibility. In addition, a sustainable transformation promotes innovation and competitiveness, as companies can develop new products and technologies that meet the needs of the market. Overall, a sustainable transformation contributes to the long-term success of the company. In a study, IT service provider infosys investigated the correlation between ESG and profit growth: a ten percent increase in ESG expenditure correlates with a one percentage point increase in profit.
However, this requires an opportunity-oriented narrative to motivate investment. Reducing the taxonomy to the term "bureaucracy monster" is the wrong approach. This unsettles entrepreneurs, who would rather wait and see. However, for the transformation of the economy to succeed, politicians must quickly set the framework conditions in such a way that the necessary sums can also be invested in the transformation. This means not only saying what will no longer be possible in the future or threatening to ban it, but also clearly stating which alternative energy sources and infrastructure entrepreneurs can build on, which must then also be available. NRW Entrepreneur President Arndt Kirchhoff is concerned about medium-term competitiveness, especially if energy-intensive industries move away or relocate production sites. "We need a new North Rhine-Westphalia tempo", he says, and the approval of investments and infrastructure projects must become significantly faster. In other words, the economy needs solutions now.
Banks are part of this solution. With an information campaign in cooperation with NRW.Bank, Energy4Climate and the chambers and associations, we are providing small and medium-sized companies in particular with practical guidelines on what they need to do now. We are developing new financing instruments and working with NRW.Bank on sustainable development programs. This interplay of bank loans, capital market instruments and the targeted use of public funds is needed. A strong European capital market is important in order to be able to handle the considerable investment volumes. It should be borne in mind that not all "green" investments are without risk. The willingness to invest should be increased by setting up a guarantee fund that only steps in if a transformation investment should go wrong, but then protects investors from defaults.
Banks also need more "legroom" in order to be able to finance the transition to digitalization and sustainability in the future. Just as banks are expanding corporate financing to include ESG criteria, regulation must also shape the special features of the taxonomy in such a way that investments are not hindered or even prevented, i.e. show more flexibility despite all the required diligence. In the Börsen- Zeitung, Bundesbank board member Joachim Wuermeling called on the financial sector to be more imaginative, to break new ground and take more risks when financing the climate-friendly and digital transformation of the economy. Even if no regulatory easing is to be expected, this statement should be seen as a sign of new beginnings so that Germany is not left behind globally.
The tasks are on the table and must now be tackled systematically. In addition to its groundbreaking study on transformation financing, the Cologne Institute for Economic Research (IW Köln) found in a survey of experts that political risks are feared which, among other things, would increase complexity and lead to more legal uncertainty. For companies, the taxonomy is essentially about two points: Firstly, proof of the "green impact" on all products and processes, and secondly, greater transparency in the presentation of business activities. Any further procrastination will lead to real locational disadvantages, and the transformation towards greater sustainability also requires broad social acceptance.
The banks stand by their customers as partners and will accompany them through the transformation process. Much is still in flux when it comes to sustainable finance, with many essential standards and data for determining the risk/return ratio still missing, especially for private investors. However, the new European standard for green bonds as a voluntary seal of quality is a good example of progress. Fin.Connect.NRW, a network that closes information and financing gaps for sustainable investments, improves awareness among companies and intensifies the overarching exchange between start-ups, science and investors, is also an exemplary nationwide initiative.
NRW is the cradle of transformation, the state is capable of structural change. Despite all the crises, the liquidity situation of SMEs in NRW is good. Now it is time to invest in the future. The NRW state government's goal of becoming the first climate-neutral industrial state is ambitious, but achievable. The banking industry has received a kind of mandate from the EU to implement the transformation. If everyone joins in, we will succeed. We are convinced that 2023 will be the year of investment for NRW.
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