Germany’s finance ministry considers screening of state budget by climate criteria

The German finance ministry (BMF) is pondering a review of the federal budget based on sustainability criteria in order to prepare the issuing of a green state bond, a ministry source told journalists in Berlin. The state budget, currently about 360 billion euros per year, would have to be screened for ‘green expenses’ that could then be used to back the environmental credentials of the issued bonds. Expenses could be investments in e-mobility, energy efficiency or other activities aimed at emissions reduction and should initially serve to “create a market” for the instrument. The screening would mean a disclosure of the cash books of all ministries involved in Germany’s climate cabinet and assess disbursements in a way akin to existing sustainability ratings, a measure whose implications not all ministries seem to have fully understood, the BMF official said.

Green bonds and other sustainable finance instruments are a rapidly growing segment on financial markets and are becoming increasingly important to fund the growing demand for renewable power and other energy transition projects. However, the lack of a commonly agreed definition for sustainability criteria is hampering development, a challenge that the European Commission has started to address by working on a common classification system, a taxonomy, for sustainable investments in Europe. Germany is one of the world's largest bond issuers, and the country is trying to quickly establish green finance expertise as a necessary complement to its climate policy. It launched a sustainable finance council in June to develop a more strategic approach.