Interview on the regulation of sustainable capital investments

Dr. Stefan Bund and Moritz Neuber discussed current regulations and initiatives with the German Federation of Sustainable Economy.

Congratulations on the publication of the brochure! What motivated you to create a brochure on the regulation of sustainable investments and who do you want to reach with it?

SDG INVESTMENTS is a matching platform for sustainable investment opportunities. We see our role as offering investors the opportunity to participate in projects that support the United Nations Sustainable Development Goals. The brochure is firstly addressed to investors who are confronted with a multitude of ambitious regulatory requirements. We want to provide more certainty about how individual regulations or initiatives work, what this means for the investor and what voluntary requirements are available. But an understanding of the regulatory framework is also necessary for companies that want to finance a sustainable project. They are the ones who provide the necessary information to investors so that the latter in turn can meet their classification and disclosure obligations.

What should investors look out for when they want to invest in sustainable capital investments?

The aim of the regulation is to create transparency in sustainable investments and to avoid greenwashing. Therefore, when investing in funds, investors should pay attention to the Article 8 or Article 9 categorisation according to the Sustainable Finance Disclosure Regulation (SFDR), and when investing in companies directly, to the classification in sustainable categories according to the EU taxonomy. However, not all economic sectors are covered by the EU taxonomy. In this case, certification of a bond as a green, social, or sustainable bond by a recognised sustainability agency offers appropriate guidance. The EU is also working on a Green Bond Standard, which will standardise this certification.

SDG INVESTMENTS has created a matching platform for financing and investment products that are aligned with the Sustainable Development Goals. What role does the financial sector play in the implementation of the 2030 Agenda?

As a financial intermediary and capital allocator, the financial industry is the lever of regulation to steer financial flows in the desired sustainable direction. Therefore, the financial sector plays a crucial role in the implementation of the 2030 Agenda! Currently, there is a financing gap of $2.5 trillion per year to achieve the SDGs. Hence, it is necessary that more capital flows into the projects and companies that have a positive impact on one of the 17 goals. On the investor side, we have observed that the demand for such financing is very high. One hurdle that often stands in the way is the lack of clarity about which business models contribute to the SDGs and in what way. As this is often not a primary point of reference for investors or companies, there is a discrepancy here.

What do you think should happen to ensure that financial and social interests are aligned in capital investments?

On the one hand, awareness of sustainable investing must be raised further, and sustainability criteria should be a central component of the investment process. Business models that support sustainability goals need to be economically sustainable as well. However, this also means that negative effects or external costs, e.g. for transport or food, should be priced in for sustainable business models to face fair competition. A sustainable business model has higher economic success in the long term and is thus financially attractive. On the other hand, transparency must improve to avoid misallocations and money ultimately flowing to the wrong purposes, despite the intention to invest sustainably.

Both points are now being addressed with regulatory requirements, and the former perspective that sustainability and return are opposites is long outdated. A convergence of the two fields of interest can therefore be observed, which will be further advanced in the future through improved awareness and transparency.

In your brochure, one chapter is devoted to the EU taxonomy. What makes this so important for the regulation of sustainable investments in your opinion?

In the past, one of the major problems was that many companies and investors had their own definition of sustainability. The result was a wide spectrum from "green" activities up to greenwashing. The taxonomy now puts an end to this because it sets out very clear criteria. Even if there are still uncertainties surrounding the taxonomy, we can expect that it will be seen as the benchmark for sustainable activities in the future. The reporting obligations that go along with it also improve transparency and awareness along the entire investment chain. From the end investor to the company, it can be determined how much capital flows into taxonomy-aligned activities. All in all, this means that more capital will flow into sustainable areas.

>> Download our brochure "The Regulation of Sustainable Investments" here

Source: German Federation of Sustainable Economy


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