Sustainable Finance

In this session we identify research needs and knowledge gaps related to the understanding of the underlying mechanisms of change. We need to improve our understanding about how to steer capital flows more towards sustainable development and what the most effective instruments are for achieving this (political / economic and business management). The role of specific mechanisms/channels in the market (i.e. between market players) and in companies (within the decision-making structures of individual market players) that lead to an increase in sustainable, climate-friendly investment activity need to be clearly identified, as well as methods, tools and approaches to measure their impact? Transparency about the current (sustainable or non-sustainable) impact of investment and financing activities could provide a useful starting/reference point. A differentiation between and coverage of all (relevant) forms of financing (stocks, bonds, loans) will be important.

Some initial questions:

1. What role do ESG factors play in ratings or the valuation of companies and (in) how (far) are they used in investment and financing decisions? What benefits their active use?
2. How do specific policies / instruments affect investment and financing decisions and how do they affect the real economy? Which financial measures (etc.) lead via which mechanisms to the reduction of CO2 emissions (of an economy)? How efficient are these measures (cost-benefit analysis)?
3. How do changes in investment decisions affect the energy consumption and emissions of specific sectors and the economy as a whole?

Short inputs by: Prof. Timo Busch, Universität Hamburg; Prof. Marco Wilkens, Universität Augsburg; Prof. Karsten Neuhoff, DIW Berlin

Session two builds on the discussion of the mechanisms to discuss concrete research needs and knowledge gaps in relation to what is needed to activate the identified key mechanisms. In particular we look at the role of information and data, at the anchoring and use of data for the pertinent decision making processes; and at the role of policy instruments and how to evaluate them.

Session 2.1: Reliable and Predictive Information

Some initial questions/issues:

1. For dynamic assessment based on scenarios, sector roadmaps, science-based targets: how can different sectors of the real economy develop? How do you break that down to the individual company rating?
2. How to build on existing forecasts (eg EPS forecasts)?
3. To what extent do the disclosure metrics and indicators capture real climate impacts?
4. Annual disclosure vs. one-off in the context of pre-contractual communication

Short inputs by: Michel Cardona, I4CE; Klaus Hagedorn, 2°investing; Sabine Pex, ISS-ESG

Session 2.2: Anchoring and using information

Some initial questions/issues:

1. How to ensure that ESG risks (including climate) are systematically included in financial market activities and decisions? Which key functions need to be addressed, created and/or strengthened?
2. What would be the advantage of mandatory, harmonized disclosure of ESG criteria (initially e.g. GHG, energy consumption), for all actors, compared to current practice (largely voluntary, only partially harmonized)?
3. Proportionality of reporting: review of existing practices (alignment, standardization), development of good practice examples
4. ESG indices / benchmarks: reinforcing effect of ETFs?
5. Mandatory integration of ESG factors and their dynamic consideration in investment and lending decisions, as well as risk management
6. How to activate the potential of customer advisory (“Kundenberatung”)?

Short inputs by: Prof. Christian Klein, Universität Kassel; Franziska Schütze, Global Climate Forum