Committing to sustainability: the role of banks as drivers and facilitators of the journey to green
The finance sector is at the coalface – so to speak – when it comes to striving for net zero carbon emissions. And, with financing targets set by world leaders at this year’s COP26 summit, the importance of the banking industry in effecting change has been cast further into the spotlight. Insights caught up with Commerzbank’s Bettina Storck, Head of Group Sustainability Management, and Martin Seimetz, Head of Risk & Resource Steering, and Project Lead, ESG Strategies, Corporate Clients, to discuss the sustainability landscape, key developments, and the fundamental role of financial institutions in the transition to a greener economy.
Europe has so far been leading the way in terms of net zero targets and broad climate regulations. As the climate crisis continues to increase in priority, what implications does this have for multinational banks?
Bettina Storck: Different regions and countries are progressing at different rates, and it is highly developed countries that need to be at the vanguard of global efforts to implement sustainable transformation. But we can only truly fight climate change when all countries are aligned in their actions. The same holds true for banks and corporates. We therefore need to communicate, share experiences and work collectively if we are to pave the way for a greener future in which businesses can flourish.
Martin Seimetz: Financial institutions (FIs) are pivotal in shaping the global economy. In turn, they have significant responsibilities in effecting change. When it comes to sustainability, banks need to simultaneously lead by example, and also support clients in meeting their goals by sharing their industry knowledge and expertise, as well as providing a host of effective sustainable finance solutions: solutions that are increasingly needed by businesses big and small.
Large multinationals were among the first to embrace sustainable finance and ESG principles. Are you now noticing that smaller businesses are focusing more on sustainability? How do their approaches differ from those of large multinationals?
Martin Seimetz: Multinationals are increasingly embracing sustainable finance and environmental, social and governance (ESG) principles. This trend is not only applicable to larger businesses, however. Many small- and medium -sized enterprises (SMEs) have also introduced ESG principles into their business strategies, with implementation well underway
As critical components within supply chains and the global economy, collectively SMEs are instrumental to the world achieving wider sustainability targets. Considerations for SMEs include meeting industry expectations and those of their larger business partners. Yet, with considerable resource efforts required to make a company’s ESG data available and evidence progress towards their goals, this can prove particularly challenging for smaller businesses.
Smaller businesses are often organically quite sustainable in their approach, particularly those with regionally interlinked supply chains. However, there is room for improvement with respect to strategic positioning, establishing sustainability-focused teams and accessing ESG data. This presents an opportunity for banks to support such businesses with their transformations.
Likewise, at Commerzbank, we are mindful of the influence we have as an enterprise on our supply chain and expect a certain level of climate neutrality from all our clients and vendors.
The G7 has expressed support of mandatory climate-related financial disclosures for corporates. Is it likely that regulators will move towards mandatory disclosures, and what challenges does this pose for the businesses involved?
Martin Seimetz: Certainly, standardisation is to be welcomed. For sustainability efforts to be most effective, greater transparency and accuracy in the reporting of businesses’ sustainability performance is required. Given the G7’s recent backing, it seems increasingly likely that we will see a greater standardisation regarding disclosure requirements and expanded sustainability-related reporting. This will serve to strengthen corporates’ commitment to their own sustainability practices. The EU Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy are also steps in the right direction in this respect.
It is important for all parties involved that the data required to achieve and maintain goals across the ESG spectrum is created and transparent. Only by increasing standardisation will the financial and real economy be able to meet the challenges of transitioning to a sustainable future together – enabling greater clarity regarding feasibility of costs, and also comparability across different industries, countries and regions.
Bettina Storck: Having mandatory disclosure for more companies would also help banks with sizeable SME portfolios to better understand their own impact and ESG efforts. But we recognise that such reporting requirements could pose challenges for businesses – particularly SMEs. Therefore, considerations around reporting standards must place an emphasis on practicality.
The transition to sustainable development is often viewed through the lens of the costs involved or the risks of non-compliance. But such a broad transformation of the global economy is also bound to create new opportunities. Do you agree with this more optimistic view, and how do you think these opportunities might manifest themselves?
Bettina Storck: The sheer scale and commitment required to implement sustainability-focused changes cannot be understated. Yet, while there are challenges, there are also opportunities to be gained from the evolving landscape. The entire world needs innovations to navigate climate change – and innovations need financing. Different economies can contribute to such solutions, with these new exports helping to balance the financial costs involved in the transition. There is currently a strong need for financing in the real economy and that also provides a chance for FIs to strengthen and develop new business areas. As a bank, we want to seize these opportunities and help to actively shape the sustainable transformation in conjunction with our clients’ needs.
How is Commerzbank helping clients progress on their own sustainability journeys?
Bettina Storck: Our role as a model for climate-conscious finance and an advocate for clients going through their own green transformations is taken very seriously at Commerzbank. It is our ambition to accompany and empower all our clients on their route to sustainability. But to transform the economy at large requires a huge amount of investment, so we make climate and transition pathways transparent, helping clients to identify courses of action and associated investment needs.
Martin Seimetz: Rather than reinventing the wheel, we instil ESG principles into the development of traditional financing solutions and draw on our experience to steadily expand the range of sustainable products we offer. To this end, we aim to mobilise a minimum of €300 billion in sustainable products to support clients on their own ESG journeys.
Of course, we are conscious of associated risks that accompany large scale change and we mitigate that as part of our holistic approach to risk management. But we see the transformation as a major opportunity not only for organisations like ourselves, but for economies and businesses of all sizes across the globe.
Becoming a more sustainable organisation is a key part of Commerzbank’s strategy, and the Bank aims to reduce the carbon emissions of its own operations to zero by 2040. Can you give some narrative around the Bank’s journey to this point?
Bettina Storck: Commerzbank was an early adopter of sustainable finance and we have reached many milestones on our sustainability journey to date. We were among the first organisations to consciously reduce our carbon footprint and slashed our CO2 emissions from our banking operations by 70% between 2007 and 2018. We have also been carbon neutral since 2015, offsetting unavoidable emissions through CO2 certificates from various climate protection projects. One example is our purchase of 10,000 certificates from the Luangwa Community Forests Project in Zambia, which offset 10,000 tonnes of CO2.
What role does shareholder activism, and more general climate-related litigation, play in encouraging FIs to become more sustainable?
Bettina Storck: Stakeholder activism and expectations are fuelling sustainable development in the market. At Commerzbank, we are in close dialogue with all stakeholders – including clients, investors and non-government organisations – and endeavour to meet the expectations and needs of our stakeholders, actively reflecting those discussions in our work and creating a balance between stakeholder and shareholder requirements.
The Net Zero Banking Alliance (NZBA) brings together major global FIs in an effort to promote decarbonisation. What impact has the Alliance had so far, and do you think it can pave the way for the harmonisation of standards across banks?
Bettina Storck: The NZBA has helped to bring climate finance into the mainstream, raising awareness of the central role of the financial sector in facilitating sustainability. The NZBA has found a good balance between standardisation and freedom for every company to reflect their own prerequisites, while also promoting healthy competition. Net zero ambition is essential if we want to achieve the goals of the Paris Agreement, and the fact that Commerzbank was a founding signatory of the NZBA reflects our firm commitment to these goals.