Bi-Monthly August 2023
Megatrend Sustainable Finance - Europe is a global pioneer market
Berlin has committed itself to the goal of climate neutrality and is working towards reducing harmful CO2 emissions by at least 95% by 2045 compared to the year 1990. The sustainable transformation of the economy costs a significant amount of money and requires considerable technological efforts.
In order to achieve the climate goals, the European Commission estimates that, for the transformation of the energy system alone, the EU needs annual additional investments of 350 billion euros until 2030. For Germany, additional investments are projected to reach a total of 2.3 trillion euros by 2050. The public budget alone will not be able to cover this sum. The private sector plays a pivotal role. Corporations and SMEs themselves will have to invest substantially, whether for ecological or digital transformation. Banks, capital markets, and institutional investors are their financing partners. Berlin's dynamic financial and technology sector, with its FinTechs, GreenTechs, banks, insurance companies, investors, and funding institutions, holds a prime position in this endeavor
And the transformation can only succeed through innovation. When it comes to innovation, the role of venture capital investors should not be underestimated. A study by the ECB shows that regions with a higher proportion of equity financing can make faster progress in transforming the economy. Companies need a complex system of equity providers, including institutional investors such as insurers, pension schemes and classic fund companies as well as private equity and venture capital companies.
Cooperation between public and private actors is crucial. The German federal government plans, within its start-up strategy, to create additional opportunities for large-volume financing by domestic investors. This adresses an significant financing gap for innovations. This is particularly important because today foreign direct investors are currently involved in about 90 percent of all deals with a volume of more than 50 million US dollars on the German venture capital market, and in half of the cases even exclusively.
Study of Germany Finance
The volume invested in sustainable initiatives in Europe is approximately ten times greater than in the United States of America. Germany is undoubtedly one of the leading European financial centers for sustainable finance. This is confirmed by the results of the “Facts, Figures and Data on Germany as a Sustainable Finance Location in a European Comparison” study commissioned by Germany Finance.
Five facts about Germany as a location for sustainable finance:
1. Behind the USA and China, Germany has the world's largest share of green IPOs in the last ten years. Almost three out of four green IPO activities take place in these three countries.
2. With a share of 8.6% of the national total, Germany has been a global leader in green IPOs over the past ten years. With a current market share of 52%, Europe is the world's largest driver for green bonds in relation to the total issue volume.
3. With 24%, Germany accounts for almost a quarter of the European market and is therefore a key player on the global market.
4. The granting of sustainable loans in Germany is steadily increasing. The German development bank KfW shows a linear growth in sustainable loans to a value of almost 50 billion euros in 2021.
5. The performance of a financial center depends largely on the performance of the associated ecosystem. Germany and the EU have a beneficial ecosystem in the area of sustainable finance. For example, Germany scores with well-developed sustainability reporting by local companies, a reliable regulatory environment or important institutions based in Germany, such as the International Sustainability Standards Board (ISSB).
The study "Facts, figures and data on Germany as a sustainable finance location in a European comparison" by the HSBA Hamburg School of Business Administration on behalf of Germany Finance is available for download here.
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