Impact of climate policy on the economy
The topic of ESG, and climate risks in particular, characterizes the discussion in various round tables and committees at FIRM. In 2024, the ESG Round Table picked out two focal points and explored them in greater depth with presentations and a position paper: the European Union’s climate policy approaches and a comparison of regulation in the EU and the USA and the resulting implications for the economy.
A key focus was on adapting sustainability strategies to the changing economic and regulatory framework conditions. In a session on March 7, 2024, experts such as Wiebke Merbeth from the German government’s Sustainable Finance Advisory Board, Nils Hums from the Net Zero Banking Alliance Germany and Heiko Kreuz and his team from Protiviti discussed the topic. Key topics included the importance of the EU taxonomy, ESG reporting and the integration of climate and environmental risks into the risk management processes of financial institutions.
EU taxonomy and reporting
Merbeth gave an overview of the Sustainable Finance Advisory Board’s objectives and areas of action, which cover all key ESG topics. Current focal points include, for example, the recommendations on the ESG scale, the implementation of the EU taxonomy and the importance of comprehensive sustainability reporting. Hums presented the structure of the Green and Sustainable Finance Cluster Germany and the Net Zero Banking Alliance Germany and discussed in particular the discussion paper “Good Governance for Sustainability”, which contains recommendations for sustainability-integrated corporate governance in banks. Protiviti’s presentation dealt with the need for financial institutions to systematically integrate climate and environmental risks into their risk management processes and achieve compliance with the strict expectations of the European Central Bank.
Position paper comparing the EU and the USA
In order to examine the impact of regulation in the EU on economic performance in more detail, the Round Table has produced a position paper entitled “Decoding the Economics of EU and US Climate Policies”. The authors Dr. Til Bünder and Nicholas Martin (both BCG) explain how the significantly more ambitious regulations in the EU affect various economic levels, where opportunities arise and what risks need to be considered.
A comparison of the EU and US climate and energy policies shows that the US is becoming more attractive due to its direct and simple approach to promoting green investments. The EU, on the other hand, is jeopardizing its leading position in the field of green innovation and investment due to its more complex regulation and the fragmentation of financing mechanisms. It is therefore crucial that the EU continues to develop its political framework conditions in such a way that climate targets are achieved and its economic competitiveness is secured at the same time.
The position paper was first presented at the FIRM Research Conference in June 2024 and discussed again in November at Euro Finance Week in light of the election results in the USA. The complete position paper is available for download here.
Outlook
In 2025, the ESG Round Table will continue to be a central platform for discussing ESG issues. For example, there will be an in-depth analysis of the assumptions and causalities on which the climate models underlying regulation in the EU are based. The “impact” of regulation in the EU in terms of its influence on competitiveness will also be examined further – in conjunction with the question of whether incentives may be creating false incentives. Finally, the round table also wants to pick up on the trend of moving away from the strong focus on CO2 and giving greater importance to other topics such as biodiversity.