Sustainable future with Green Finance

If we are to achieve the 2030 targets for energy and climate set out in the NECP (the Integrated National Energy and Climate Plan for Austria), the country must invest at least 17 billion Euros each year. This shows how important the finance sector is as a lever for climate protection as well as for economic recovery and helping the economy and society move towards sustainability. Investing in climate protection will create more green jobs and growth in the sectors of the future, where sustainable growth is possible. This is precisely where green finance can provide support for reviving our economy sustainably and creating the most futureproof jobs.

The new, EU-wide taxonomy framework sets major ground rules for green finance. From 2022, the taxonomy will form the basis on which details of sustainable finance products can be transparently published and compared. It will prevent companies from presenting projects as more environmentally friendly than they really are which is also known as greenwashing. This will ensure that more capital flows into effective, sustainable projects.

Green finance is mainly aimed at decision-makers in politics and public administration as well as the financial sector. But, it is also aimed at the real economy – industry, services and commerce – as well as private citizens who take an interest in the matter. Green investments can be purely financial vehicles, or they may be real investments, for example a photovoltaic plant or citizen-driven communities that generate energy from renewable energy sources such as hydropower, wind or solar.

Sustainable (or ‘green’) investment products offered on financial markets vary widely. Most only differ from conventional investment in that they meet certain criteria relating to environmental, social and ethical responsibility. Increasingly, their main attention focusses on climate mitigation. In recent years, the total amount invested following sustainability criteria has risen significantly. However, these criteria can vary widely – so it is important to look in detail at each particular financial product and its investment focus. Alternative financing models in the energy and climate mitigation sectors, such as crowdfunding, offer an ever-growing number of possibilities.

Yes, our Ministry plans:

• To adjust the legal framework and thus promote green investments
• To push initiatives further that drive this issue forward – such as establishing a green project pipeline, continuing the Green Finance Alliance, and supporting Green Financial Literacy
• To enable the general public to make more green investments
• To reinforce green projects in local communities and federal states
• To embed sustainable financial instruments more firmly in the Austrian market, issue green sovereign bonds and promote sustainable investments of public funds
• To avoid stranded assets by performing assessments of climate and environmental risks in the financial sector
• To promote a framework and clear criteria for increased transparency and openness
• To promote measurement and monitoring which establishes whether financial flows are climate friendly
• To ensure the Austrian finance sector is aligned with the Paris climate targets
• To stimulate support for research initiatives in the green finance sector
• To provide relevant knowledge and skills through Green Financial Literacy
• To promote cooperation with existing climate protection initiatives such as klimaaktiv.

There are already many financial products and instruments on the market which are said to be sustainable. These include green funds, shares, loans, lines of credit (for climate-friendly projects), leasing and crowdfunding. Savings and current account products are also available, and some have already been certified with the Austrian environmental label for sustainable finance products.

Many financial institutions already offer a wide range of financial products. However, it is important to look carefully at the relevant criteria so you can avoid companies which ‘greenwash’ their financial products. The 2020 EU Sustainable Finance Taxonomy Regulation has established a framework for this. Investments in green projects can also be termed ‘green investments’. These might be investments for photovoltaic plants or in citizen-driven communities generating energy from renewable sources such as wind, solar or hydropower.

Green finance is essential for anybody who wants to invest money or who needs money for sustainable projects. Companies can finance their green projects this way, while investors can enjoy knowing that their money is doing good in several different ways. Green finance yields returns, is an investment in the future and makes a significant contribution to achieving climate and energy targets. This means green finance is good for achieving a green economy and for the climate.

Studies show that sustainable investments are also beneficial or at least not underperforming in terms of their financial returns. The University of Hamburg analyzed 2,000 studies and showed that around 90% found that sustainable investments did not resulted in financial underperformance, while 50% of studies even showed they had a positive financial impact. Research by the Environment Agency Austria (UBA) concluded that sustainable funds perform comparably to conventional funds.

Study "Climate-friendly investment strategies and performance" (→ Federal Office for Environment, Switzerland)

Furthermore, funds which damage the climate also have significantly less favorable risk-return profiles than sustainable funds. The company Scope Analysis found that sustainable stocks were more resilient during the coronavirus crisis than conventional stocks. Further details are available in the → Fact Check Green Finance.

An EU-wide classification system, the EU taxonomy, is currently being developed for environmentally sustainable activities. It aims to avoid greenwashing and form the basis on which details of sustainable finance products can be transparently published and compared.

The ‘UZ 49’ license for Sustainable Investment Products is a reliable standard used within Austria. Since 1 January 2020, the license features even stricter exclusion criteria, which will be further developed along the lines of the EU taxonomy. For instance, licensed funds may not invest in projects which promote fossil fuels or generate energy from coal or oil.

Both at EU and international levels, criteria and standards are currently being developed for sustainable finance products. These will help identify and prevent greenwashing. The EU is working on the following: from 2022, the EU taxonomy will allow information on climate protection and climate change adaptation to be published transparently in order to easily compare financial products. From 2023, four further environmental targets will be added, relating to water, biodiversity, circular economy and pollution prevention.

The following activities have been identified as being key in preventing greenwashing:

• Swiftly implementing the new EU taxonomy, for instance by training financial market stakeholders, the supervisory authorities, and multipliers in how to apply the taxonomy in practice
• Fully aligning the Austrian ‘UZ 49’ license for Sustainable Investment Products with the EU taxonomy
• Ensuring that the klimaaktiv quality standards are compatible with the requirements of the EU taxonomy
• The supervisory authorities provide clear guidance and directives
• The supervisory authorities focus on preventing greenwashing.

The EU taxonomy is a classification system for green investments within the European Union, initially establishing a list of environmental objectives relating to climate protection. Beginning in 2022, a catalogue of technical screening criteria clearly define which economic activities are environmentally sustainable. The taxonomy will provide a framework, which assesses how environmentally and climate friendly investments truly are, increases transparency and trust in the market, and also helps consumers identify and avoid companies involved in greenwashing activities. The rules of the taxonomy require a uniform approach, which will bring stricter transparency and reporting requirements, applicable not only to companies in the real economy but also for financial sector firms. For further information, see: EU taxonomy for sustainable activities.