Climate Protection and Finance (KlimFi)
A financial sector that supports climate-neutral economic activity is important in order to comply with the Paris Agreement. Therefore, the BMBF measure “Climate Protection and Finance (KlimFi)” will explore ways to achieve a sustainable financial sector.
The global financial system has a major impact on sustainability: by steering financial flows towards sustainable activities, the financial sector has considerable potential to shape the economy and society in an environmentally friendly and climate-neutral way, thus contributing to the achievement of international climate and sustainability goals.
However, research and new knowledge are needed to shape the financial system in a sustainable manner - under the keyword "sustainable finance". This is precisely where the funding measure "Climate Protection and Finance (KlimFi)" of the Federal Ministry of Education and Research (BMBF) comes in. The aim of the KlimFi funding measure is to research the following five topics for a sustainable financial sector:
- Financial products and instruments, processes and market mechanisms and their impact
- Financial actors' needs, acceptance and behaviour: the role of financial services providers, investors and retail clients
- Systemic examination of the financial sector: governance, governability and regulation and the embedding and integration of the financial sector in the economy as a whole
- Interactions between sociatal developments, climate change and the financial sector
- Data availability, quality and analysis
Recommendations for action for stakeholders from the financial sector, the real economy, politics and society are to be derived and communicated from the results of the KlimFi funding measure.
To explore these and other questions, the BMBF is funding the KlimFi funding measure with around eleven million euros from 2022 to 2026.
In addition to 14 research projects with a total of 37 sub-projects, the BMBF is also funding the accompanying scientific project "SFCP/Sustainable Finance and Climate Protection" as part of this measure. The aim of this project is to promote joint and mutual learning between the collaborative projects, to ensure their scientific and practical connectivity and relevance, and to ensure that the project results are processed in a way that is appropriate for the target group.
Projects on the topic "Financial products and instruments, processes and market mechanisms and their effects (impact)"
The ClimLabels project aims to develop transparent labels for sustainable financial products. These should (1) be based on reliable transformation indicators, (2) be aligned with the usual requirements of financial experts and (3) be relevant and attractive for investors. To this end, the following research questions will be answered: Under what circumstances do investors invest in companies in transformation for greater sustainability? How should sustainability-oriented information be made available to retail investors, professionals and fund managers? To this end, the project conducts, among other things, behavioral experiments that can be used to analyze individual decisions and the market behavior of retail investors. For example, the project will investigate, which financial and capital investment bank customers currently choose and which investment recommendations financial advisors make.
Nearly 40 percent of CO2 emissions in the EU are caused by buildings - especially by existing properties. This is due to space heating, cooling and lighting. The CREATE project therefore focuses on innovative, sustainable financial and insurance products that ideally achieve a high transformative effect. To this end, the project uses creative design thinking methods to investigate the behavior, needs and expectations of selected financial market players. The aim is to gain a better understanding of the drivers and barriers to the use of existing sustainable financial products. Based on these findings, innovative financial products for the reduction of climate-impacting emissions from the building sector will then be developed.
The GAS project is about providing insights for the design of future sustainable automotive policies and their impact on the risk management of European financial institutions. The project focuses on the analysis and definition of transparent sustainability factors and standardized methods for reliable, new criteria for sustainable financial products in the automotive sector. Based on these criteria, the researchers will develop two new climate-friendly financial products for the automotive sector as examples.
Projects on the topic "Needs, acceptance and behavior of financial market players: The role of financial service providers, investors and private customers"
Energy-efficient and sustainable building refurbishment is a crucial factor in achieving climate targets in the building sector. The FEIRE project aims to drive this forward by supporting owners and tenants by developing concrete demand-oriented solutions for promoting energy-efficient building modernization. To this end, the project's first step is to create a new database on the emission savings potential of buildings and on financial savings opportunities for owners or tenants. In the next step, FEIRE will use this as a basis to develop concrete proposals and options for promoting energy-efficient building modernization and prepare them in a user-friendly form.
The ESGInvest project aims to provide new insights for policymakers and financial decision-makers on the operation and impact of ESG investments by private investors. ESG stands for "Environmental, Social and Governance". The ESG investment preferences of these investors as well as the lending behavior of financial institutions are investigated by means of behavioral-economic-experimental analyses. Based on the results, criteria can be established for the effectiveness of various policy measures to achieve climate goals through sustainable financing measures.
The INTERACT project is investigating the impact channels through which the financial sector can contribute to achieving climate policy goals. To this end, the project examines the investment behavior of private households. Using game-theoretical modeling and experiments, market mechanisms and conditions are derived that are necessary for an optimal sustainable impact. Second, the project examines the question of whether and how sustainable regulation can influence the access to credit of small and medium-sized enterprises (SMEs) in particular. Another aspect is whether this sustainable regulation is reflected in differentiated credit conditions and thus gives companies incentives for more climate-friendly activities.
Projects on the topic "Systemic view of the financial sector: management, controllability and regulation as well as macroeconomic embedding and interlocking"
Ambitious climate policy presents companies with the challenge of scrapping or replacing emission-intensive plants or transforming them through emission-reducing investments. At the same time, however, it triggers a devaluation of corporate assets, so that tighter financing conditions make it more difficult for indebted companies in particular to make efficient decisions in favor of sustainability. The OVERHANG project investigates how the financial system influences investment and disinvestment in climate-damaging assets. The focus is on the role of banks and the impact of bank capital regulation on investment strategies. In this way, the researchers aim to identify insights for policy on financial regulation, government-controlled lending, and financial stability for sustainability.
Although the risk that CO2-intensive assets will lose a lot of their value in the future is high, there is still a lot of profit to be made from these assets at present, which is why financial players continue to invest extensively in these areas. Against this backdrop, it is also the task of policymakers and civil society to create incentives and regulatory corridors or build up pressure to motivate the financial industry to make a greater contribution to limiting climate change. The SUFI project therefore aims to develop policy recommendations that create incentives for financial actors to significantly increase their engagement in sustainable investment. To this end, the project uses an interdisciplinary analytical framework to collect data on the interplay of a) internal financial market dynamics, b) financial actors' responses to regulations, fiscal policy, monetary policy, and c) civil society demands and campaigns for sustainable financial market policies.
The Climvest project will contribute to the cause-and-effect relationships between sustainable financial investments and the achievement of climate goals. The project addresses the question under which conditions private and institutional investors are willing to invest in climate-friendly capital markets; and how sustainable financial products need to be designed in order to advance sustainability. Furthermore, it will be empirically investigated whether and to what extent climate-friendly investors are already willing to forego parts of the return on their investments and which measures can influence this.
Projects on the topic "Interactions between social developments, climate change and the financial sector"
The ClimFiSoc project is about expanding the financial perspective on the climate issue to include the societal dimension. The institutional logics of different societal actors (civil society, industrial SMEs, regional banks and development banks), which are crucial for the transformation to climate neutrality but have not been sufficiently considered so far, are investigated. What are the perspectives, incentives and restrictions of these different actors in the field of climate finance? To answer this question, we will take a look not only at the German but also the French climate finance landscape.
KlimKomInvest - Sustainable financing of municipal climate investments under consideration of EU taxonomy
The KlimKomInvest project deals with municipal climate investments. For this purpose, existing challenges, such as the application of the EU taxonomy, for municipal investments will be analyzed and national and international best practice examples for overcoming these challenges will be collected. In addition, based on the scientific preparation of European and international best practice examples, a stakeholder dialogue involving all relevant actors (municipalities, public enterprises, development banks, federal states and municipal supervisors) will be conducted. In this way, the existing expertise from municipalities, public enterprises, development banks, state and municipal supervisory authorities will be incorporated into the results of the project. The project will thus contribute to ensuring that public investments are financed much more strongly in the future than they are today through sustainable forms of financing in the sense of EU taxonomy.
Projects on the subject of "Data availability, quality and analysis"
The CONFILIENCE project focuses on the effects of increasing weather risks due to climate change on wage income as well as on over-indebtedness and insolvencies of consumers. For this purpose, weather data are linked with data on employment relationships in order to measure weather effects on individual labor income. These results will then be examined in particular with regard to the role of regional banks, which are responsible for moderating these (new) financial risks. In the course of the project, so-called "heat maps" will be available online, showing climate-related liquidity, over-indebtedness and insolvency risks of consumers.
SATISFY – Scenario Analysis as a Tool for Investor, Firms and Regulators on the path to climate neutrality
Scenario analysis is an important tool for identifying and understanding the potential impacts of structural changes. The SATISFY project investigates how scenario analysis can serve as a tool to assess, manage, and communicate company-specific climate risks and opportunities, and thus support the transition to a climate-neutral economy. The project focuses on three types of companies: (1) emission-intensive manufacturing companies, (2) SMEs, and (3) building/real estate companies, and asks to what extent macroeconomic climate scenarios can be applied to the individual company.
The Klik project addresses climate reporting by small and medium-sized enterprises (SMEs) and investigates what added value such reporting can have for companies. To this end, the project analyzes government measures and regulatory requirements for sustainability reporting. The aim of the project is to develop a standardized framework in the form of a guide that will enable SMEs to complete climate reporting quickly and at the same time benefit even more from it.
KlimFi as an implementation measure of the FONA strategy
The funding measure "Climate Protection and Finance - KlimFi" contributes to the implementation of the BMBF's Research for Sustainability (FONA) strategy. KlimFi is dedicated in particular to "Action 22: Supporting the sustainable orientation of the economic and financial system". In addition, there are content-related points of contact and cross-connections with the funding measure "Economics of Climate Change", which the Federal Ministry of Education and Research has funded for more than ten years.
Contribution to achieving the UN Sustainable Development Goals and climate protection targets and to the Federal Government's Sustainable Finance Strategy
With the establishment of the funding priority "Climate Protection and Finance", the BMBF is making a significant contribution to research into the reciprocal influences of finance, financial markets and climate protection and is thus helping to achieve the UN Sustainable Development Goals and the international goals of the Paris Agreement of 2015. As a measure of the Federal Government's Climate Protection Programme 2030, the BMBF also supports the national Climate Protection Plan 2050 with KlimFi.
Furthermore, the BMBF is following the recommendation of the Federal Government's Sustainable Finance Advisory Council of February 2021: In its final report, the advisory board called for a targeted expansion of research efforts in the field of sustainable finance.