Sustainable Investment Standards: harmonisation or proliferation?

7 May, 2021

Businesses and investors in Germany are facing a fresh wave of environmental regulation after the government unveiled a new sustainable investment strategy just weeks after the EU announced its own far-reaching standards.

The German Sustainable Finance Strategy has 26 separate measures to boost green investment, including plans for the country’s own ‘traffic light’ system to help investors identify environmentally friendly investments, and new laws requiring non-financial disclosures from companies. 

Germany’s own national investment rules come just three months after the European Union introduced its Sustainable Finance Disclosure Regulations (SFDR) along with the EU taxonomy for classifying sustainable investments. The German government said it would seek to align its traffic light system with the rest of the EU, but that if progress on that alignment was slow it would press ahead with the national scheme through its Federal Environmental Agency. 

Other measures included in the strategy are plans to increase export credit guarantees for green projects and a transfer of €9bn (£7.8bn) worth of equities held in state pension and welfare funds into sustainable investments. 

The German government said the strategy was intended to help the wider EU hit its environmental targets, which include cutting carbon emissions by 55% by 2030 and becoming carbon neutral by 2050.  

Germany’s Sustainable Finance Committee, which advises the government and whose work underpins the new strategy, has estimated that €1trn will be required in targeted investment across Europe to meet those targets. As a leading financial centre, Germany’s investment markets would have to play a significant role in such a scale of investment. 

The announcement from the German government comes as the country moves towards national elections in September, in which environmental issues appear to be playing a significant role. 

Chancellor Angela Merkel’s Christian Democratic Union party and its coalition partner the Social Democratic Party are facing a strong challenge from the Green Party, which is currently leading most polls.