German parties warn against burden of sustainable finance for smaller businesses

Several parties in Germany's parliament have warned against placing excessive burdens on small and medium-sized businesses (SMEs) through regulation of financial markets due to tighter sustainability criteria in a parliamentary committee hearing. The conservative CDU/CSU group of Chancellor Angela Merkel said SMEs, which are particularly affected by the implementation of sustainable finance regulations, do not feel sufficiently represented in the German sustainable finance advisory board, which consists of members from the financial sector, from industry and other economic sectors, civil society and academia, as well as observers from associations and the German federal bank. The conservatives' government coalition partner, the Social Democrats (SPD), echoed this concern, pointing out that in addition to ecological sustainability, attention should be paid to social sustainability. The pro-business party FDP group said it feared that the European taxonomy would become “very bureaucratic and very static.” This fear of bureaucracy was underlined by the CDU/CSU group, which is worried that the regulatory framework would stifle innovation. The Left Party pointed out that sustainable finance could not be a substitute for an ecological industrial policy, while the Greens emphasized that many investors are desperately looking for sustainable investment opportunities, as seen with the popularity of the ‘green bonds’ issued by the German government.

The head of the sustainable finance advisory board, Karsten Löffler, said SMEs would not have to worry about any excessive burden coming from sustainable finance regulation, arguing that the forthcoming EU taxonomy would only make a small fraction of its entire rulebook binding for companies with "less complex" business models. He added that Germany must become more involved in sustainable finance at the European level, since neighbouring countries already published their strategies. Löffler explained that sustainable finance is not a goal in itself, but a means to put the financial sector in a position to “best accompany and finance” the transformation of the economy towards climate-neutrality. The advisory board intends to present its recommendations on strategy development to the German government in February 2021.

Germany has long neglected to compel banks, insurance companies, fund managers and other financial actors to better integrate the so-called ESG (environmental, social and governance) sustainability criteria in their business, but in 2019 the government announced its ambition for the country to become a leading location for sustainable finance. Germany is now in the process of finding a way to harmonise the financial sector and the climate targets. The European Commission is currently designing the climate taxonomy, which could make the EU the world’s first unitary system for classifying the sustainability of investments. The taxonomy is to be launched next year.