Cash for the world
Financial actors are not concentrating solely on the fight against crises, but are also using the financial market as an instrument to achieve social and ecological goals. The targeted management of cash flows is intended to drive technological progress, promote social justice and, not least, achieve climate targets.
The impetus from policy-makers, market players and from consumers is setting the pace. The financial sector is responding with new products that increasingly take ecological and social aspects into account alongside economic aspects, for example in the form of sustainable equity funds or green bonds. In this way, the industry is supporting sustainable entrepreneurial growth, the fight against climate change and the success of the energy transition.
The financial need for these goals are enormous. According to the World Wildlife Fund For Nature (WWF), this need amounts to two to three trillion dollars – per year. As one of the world’s most important environmental protection organizations, the WWF is calling for targeted middle management to bring about change in the financial sector and in society.
To implement its demands, the organization has founded the „Science Based Targets“ initiative, which many international companies have now joined. The declared targets are a sustainable financial system, the promotion of climate-neutral technologies, and business models in line with the sustainability of our planet.
The mother of all financial bubbles
The first financial bubble in Europe was “tulip mania”. Unknown in Europe until 1630, the tulip quickly became a status symbol of the nobility – especially in Amsterdam, where these exotic flowers first reached European soil. In this economically successful age, however, the wealthy middle classes also took a liking to the eye-catching flowers. Reports of sensational profits further fueled the speculative bubble. In 1634, a single flower bulb was worth more than a noble town house in Amsterdam. New financial products were developed to meet demand: A forerunner of today’s futures contracts allowed buyers to speculate on tulip bulbs without physically owning them. This set the stage for a crash. After the crash, tulips only had the value of vegetable bulbs and hundreds of traders went bankrupt.
The standard for sustainability ESG
These visions, declarations of intent and guidelines, some of which have already been incorporated into legislation, must be implemented individually by the market participants. In order to make the future-oriented activities of a company comprehensible and comparable, the “ESG criteria” were defined as a first standardized catalogue for sustainable corporate strategies. The acronym ESG stands for Environmental, Social and Governance. This allows the sustainability and ethics of a company to be evaluated beyond the pure profitability indicators (KPIs).
However, there are still no specific guidelines for the practical implementation of the ESG criteria, which makes comparability difficult. Standardization can help here as an instrument for support.
Babylonian diversity versus Spartan clarity
In addition to the ESG standards, there are other sets of rules – some of them by the same authors. First and foremost, this includes the GRI standard, which has been the benchmark for voluntary sustainability reports in the past. 80 percent of the world’s 250 largest companies already use GRI guidelines to create universal, topic-specific and industry-specific reports. Whether ESG or GRI – these criteria were and are more than just business indicators: They also serve as milestones for policy-makers and as beacons for investors. They help the company to make investment risks more predictable and at the same time achieve a positive impact on the environment and society.
Sustainable finance
The integration of ecological, social and governance factors in financing and investment decisions is summarized by the term "sustainable finance". With many people, organizations and governments wanting a more sustainable future, this approach is becoming increasingly important. There are now various instruments and strategies for targeted and sustainable financing: For example, the German government has set up a Sustainable Finance Advisory Board to help make Germany a leading location for sustainable finance. Financial institutions have also developed corresponding products: The spectrum ranges from green bonds, which are issued specifically to finance environmentally friendly projects, to sustainable investment funds.
Against the backdrop of the Paris Climate Agreement, European governments have launched programs to promote and regulate sustainable financing. They have developed guidelines and frameworks that support transparency and reporting on the basis of ESG factors. Some countries have also introduced tax incentives for sustainable investments in order to further stimulate the market and attract private investors.
Cryptocurrencies: Hardly sustainable
How sustainable are cryptocurrencies really? From an environmental point of view, things do not look good for cybercurrencies, as the production process consumes a lot of electricity. This is thanks to the underlying blockchain technology, a very powerful global computer network. This network is needed for transactions and for mining bitcoins, for example. Experts are not entirely in agreement on how high the power consumption in the crypto sector is. Estimates vary from 50 to more than 140 terawatt hours per year. For comparison: Around 500 terawatt hours are consumed throughout Germany every year. Second-generation cryptocurrencies are based on a slightly different technology that does not require complicated and energy-intensive computing operations. One example is “ethereum”, which relies on a green blockchain and has been able to reduce its electricity consumption by 99.5 percent.
