Sustaina­ble finance column

It’s not enough to just be green

Insurers have always had a particular interest in sustainable capital investments as their business model is based on long-term protection from risks. Economy and ecology cannot be mutually exclusive within this model. We accept this challenge – but the security of our customers’ contributions is paramount.

With an investment portfolio in the region of EUR 1.35 trillion, direct insurers are among Germany's largest institutional investors. Against a backdrop of impending climate change, rapid global population growth and growing global uncertainty, the German insurance industry supports society’s desire to move the global economy towards a more sustainable footing.

What does sustainability mean?

A search on the consumer portal Finanztip yields the article “You can buy this these equity index funds with a clear conscience" (in german: "Diese Aktien-Indexfonds können Sie guten Gewissens kaufen"). In our trade magazine, we not only devoted our cover story to the subject, we even asked the President of the EKD, a community of Protestant churches in Germany, about it. “I understand sustainable business as not targeting short-term gain but thinking instead about the generations to come”, says Heinrich Bedford-Strohm in an interview. The regional bishop draws a parallel between the church, which also invests “substantially” via pension funds, and our industry: “How can I optimally combine economic sustainability with ecological and social sustainability? That would be the job description – for the church as well as the insurance sector.”

It’s not just us and the church, the EU Commission is also working on this job description: this goes to show that the definition of sustainability has been very imprecise thus far. If you ask German insurers for their position, the main response is: “Secure and profitable investments are imperative for us, so we can meet our long-term commitments to our customers”. This objective cannot be ignored when giving added consideration to ecological and social criteria when taking investment decisions, as advocated by the EU Commission.

Ecologically sustainable does not necessarily mean economically sustainable

A current example: a few days ago, Bonn District Court opened insolvency proceedings against what was once a model German company:  Solarworld Industries has gone bankrupt – only a few months prior to that, the predecessor group Solarworld AG had filed for insolvency. The fate of this one-time market leader is a classic example of the failure of the local photovoltaic market. Most of the companies have gone under, taking tens of thousands of jobs and a lot of investors’ money with them. Moreover, this is happening in the country of energy transition where producers of renewable power have benefited from subsidies running into the billions. This goes to show that ecological sustainability does not necessarily equate with economic sustainability.

Voluntary dissemination of sustainability concepts

We accept the challenge and participate in the political debate: The Action Plan to Finance Sustainable Growth is an important step towards sustainable business practice in the European Union. On 24 May 2018, the EU Commission published its first legislative proposals on a range of measures from the action plan. The introduction of a classification system and new standards, for example concerning green bonds, can provide more clarity and transparency for investors and consumers. The insurance sector is counting on the voluntary dissemination of sustainability concepts. Different approaches or a combination of approaches can be advisable depending on an insurer's size and specific situation. You can read a detailed account of our position here.

Sincerely yours

 Jörg von Fürstenwerth

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