The Financial Sector as Climate Protector? The Potential of Sustainable Finance

Background Paper Forum Climate Economics 11

The established goal of climate neutrality requires a rapid decarbonisation of the economy. Both in Germany and in the European Union, the financial sector is seen as playing an increasingly important role in achieving this goal. This background paper provides an overview of the fields of action, actors and measures associated with the term "sustainable finance". It takes a closer look at the levers that control how investors and capital markets decide whether to invest in low-emission activities or to withdraw from emission-intensive activities, and what framework conditions are necessary to enable different investor groups to make well-informed decisions. In particular, this involves providing the information needed to assess investments in terms of their climate risks. A transformation can succeed if a reporting system creates transparency about the extent to which companies are on the path to this transformation, if investors demand and use this information, and if targeted government measures help to overcome investment barriers.

This background paper is only available in German.