A Sustainable Future: Dr. Esther Wandel, German Federal Ministry of Finance, on Driving Transition Finance into the Real Economy

 

How are national policymakers driving transition finance into the real economy? Listen to Jason Mitchell discuss with Dr. Esther Wandel, German Federal Ministry of Finance, how the German Federal Ministry of Finance is evolving its Sustainable Finance Strategy and what ‘harmonisation’ holds for sustainable regulations and standards.

Recording date: 28 July 2023

Dr. Esther Wandel

Dr. Esther Wandel is head of division for Investment Funds and Sustainable Finance at the German Federal Ministry of Finance. She focuses on the international, European and national Agenda on sustainable finance and asset management topics. Esther led the financial services team of the Permanent Representation of Germany in Brussels for two years where she led and coordinated work on financial services during the German EU presidency. She worked for the European Commission for seven years as well as Financial Conduct Authority in London for three years.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

 

Jason Mitchell

Welcome to the podcast, Dr. Esther Wandel. It's great to have you here today and thank you for taking the time.

Dr. Esther Wandel

Thank you, Jason. Thank you for having me. And I am looking forward to the conversation. It's a great pleasure to be here.

Jason Mitchell

That's great. That's great to hear. And I am, too. So, Esther, I'd like to first set up our discussion with why you're here as the head of the Division for Investment Funds and Sustainable Finance at the German Federal Ministry of Finance. Can you talk a little about what the scope and oversights of that role means? And I guess I'm also interested in how that's expanded, given the introduction of so much significant regulation from the European Commission over the last several years.

Dr. Esther Wandel

Yes. Thank you very much, Jason. So the role has clearly expanded over time. So originally it was an asset management team and sustainable finance was later on added. It looks a little bit random, but at the end it's not so random because obviously sustainable finance is very much linked to the Capital Markets Union from a European perspective. And also asset management plays a vital role.

Dr. Esther Wandel

Obviously there is the other sector, so cross-sectoral issue, but still I think the asset management industry has a vital role here. The topic is very dynamic and takes the factor. The lion's share of my time. The role in Boyle's working on national policy on sustainable finance involves work on the EU level and also on the global level. The challenge is also that the implications of that work go well beyond the financial sector and have, I think, also major repercussions for the real economy.

Dr. Esther Wandel

So my work became much more interesting, but obviously is also much more complex. I would like to add was a thought here because I think we have very conscious to be here that particularly from the EU Commission and from the U.S., the Green Deal was very much driven by the financial services sector, which is absolutely fine. But we have to keep in mind that the transition takes place in the real economy.

Dr. Esther Wandel

Thus we need both sides on the table and that's something we look very much into. Also, in view of the burdens on costs for both sides, the role is a great opportunity therefore also to walk new paths. For instance, we are also here in charge of coordinating our Sustainable Finance Advisory Committee. I would say a rather unique body because it's bringing together stakeholders from different from all quarters in all areas.

Dr. Esther Wandel

So financial service industry, real economy, including SMEs, academia and civil society. And they have done a great piece of work in the last couple of months already. Great piece of work on taxonomy, very interesting work on an ESG indicator for retail products. I might say a bit later, something about it and other very interesting initiatives. So you can see it's very broad and very exciting.

Jason Mitchell

And can we also talk about the relationship to BAFIN? BAFIN, of course, is the German Federal Financial Supervisory Authority. It's an independent body, but clearly needs to follow the aims and objectives that the Ministry of Finance sets out, for instance, financial stability of the finance sector. What does that legal and technical oversight of BAFIN really mean? You know, what does that interaction look like, particularly in a context of sustainable finance?

Dr. Esther Wandel

Yeah, this is a topic which goes largely beyond sustainable finance because it's a more general issue. But I think very generally I want to clarify that Bafin as a supervisory body is operationally independent as it is expected from supervisors according to international standards, as a so-called technical and legal oversight, which is basically rooted in our Constitution and in the German system, has to restrict this as it is clearly laid out in the principles of cooperation we have with the Bafin in terms of sustainable finance.

Dr. Esther Wandel

I think it's very interesting to know that the BAFIN has sought its own objectives. It's also co-operative process and one of these objectives is sustainability, by which Bafin obliges itself to consider sustainability aspects and their supervision. So this is also very important too for our corporation and of the Bafin is doing work along these lines and obviously we are in an exchange, we have a good cooperation, particularly they are also observers in the Sustainable Finance Advisory Committees and there is an exchange, but their role is obviously one which I have described in relation to sustainability.

Jason Mitchell

And that's very helpful. I want to take a pause and do a little bit of scene setting. According to data from the BVI, SFO appears to be a pretty significant driver for the increase of sustainable assets, at least as defined by Article eight and Article nine held by German domiciled funds. German sustainable assets, for instance, increased from 660 billion in Q4 21 to 8 billion by Q1 of 23.

Jason Mitchell

A good portion of this is obviously due to RECLASSIFICATIONS. But do you see this growth is evidence of the success of SFO or specific effort to steer capital flows or is there another explanation, for instance, maybe German norms shifting or could it potentially represent in the future greenwashing concerns, whether that means good faith misinterpreted patients of regulation or potentially bad behavior?

Dr. Esther Wandel

As Jason, I think it's true that we have generally seen, I think not only in Germany, but almost globally, a tremendous growth in sustainable seemed investment product. For instance, Dunk Tort in 22 found out that the market reached about $5.8 trillion and grew about 5% of grew up from about 12% from 21. The Sustainable Fund market also in more specific also increased.

Dr. Esther Wandel

And we know and that's I think also important to keep in mind that there is a lot of demand for such products. So I think increasingly investors seek investment opportunities which are obviously interesting from the benefit and the returns side, but also which create another benefit or potentially maybe outside monetary impact. And this is clearly true for Germany as well as you quoted by your figures.

Dr. Esther Wandel

Now, the interesting question you asked, whether this is a result of regulation or whether it's regulation just following the trend in this respect. So was investor demand first and what happened then later on was regulation was made basically reflecting that trend. I think this is a very open and almost philosophical question. I think it would be very great to have more reliable data in order to indeed measure concretely the impact of regulation and its impact on what is happening.

Dr. Esther Wandel

Because at the end, this is what we need to understand the regulation, because ultimately it's about transforming of our economies and sustainable performance is obviously a very important piece of that. But we have to be aware maybe there was also other ways of doing it. I think you mentioned already in your questions a bit Also the challenges I think, which we see with CSF y'all, and it's for instance, very much true that BVI has classified by far more products under Article eight compared to Article nine, certainly because of caution and some uncertainties around is the SFR, which I think necessary to look at.

Dr. Esther Wandel

But I think we would go a bit deeper into the issues around as of beyond the minute.

Jason Mitchell

Thanks, Esther. That's really helpful. I'm also curious about how the German market organizes itself from this perspective. What's the reason for the proportion of assets and sustainable funds in Germany remaining lower than both the EU average and the figure in many European countries, at least among retail funds, At roughly only a third of all fund assets held by German investors are in sustainable funds.

Jason Mitchell

I articulate in Article nine, according to Morningstar and BVI data, at least at the end of 21, I don't have any later data. This seems to contrast sharply with countries like Sweden at 79%, France at 60%, and an EU average at 40%. Is there something structural? Is there a structural explanation about that?

Dr. Esther Wandel

Drivers? And so I think the figures I got from LED, which are more recent from May 20, 23, tell us slightly different story because there we see almost half of the assets under management for which the funds are Article eight funds. So that is around 49%. So we are much closer to what you have quoted for other countries.

Dr. Esther Wandel

As I said, however, and that is I think because of some of the uncertainties, maybe also the caution of the German manufacturers that they are much less products under Article nine. And this is why they they have put less products under Article nine, I think is because they are very cautious in terms of not wanting to suggest something which is not on the tin.

Dr. Esther Wandel

I cannot comment how other member states deal with that. Maybe they have different approaches. However, what I think is very clear from that figure, which we just discussed, is that there are different approaches to the SFR and that they are also uncertainties mostly probably around Article nine, how to classify the products. And this is why we think together with some also of our European partners that the as of Dionisio revising and we are very pleased to hear that the commission wants to start a process around that after the summer break.

Dr. Esther Wandel

It would probably not happen under this cycle, which is probably also good news because I'm quite aware that the market has already developed in a certain shape, so we should not make too hasty conclusions. How to revise the SFR. I think we need proper consultation, proper evidence, proper analyzes of the market, but it shows certainly that there is an issue which leads to supervisors and firms to take different approaches to the SFR, which is probably ultimately not so helpful for the consumer.

Jason Mitchell

No, no, I would agree with you there very strongly. But let let's dig in to that. If you were to look at some of these issues that you're pointing to, what's working and what's not working with regard to European sustainable finance regulations, do do we have time to substantially revise these regulatory frameworks?

Dr. Esther Wandel

So I think, first of all, we should be very clear that with all these regulatory efforts of the European Union, we would not be where we are today. There is huge progress, sustainable finance since 28 has left the MES. It's not an issue anymore, as has become mainstream firms and financial services players. Put it at the heart of their thinking.

Dr. Esther Wandel

There's a lot of awareness and I think the whole financial sector is also aware that they have to play important role here. So there is clearly progress and this is also indispensable. At the same time, when you look at the more technical lack, there are challenges. For instance, I think we are still dealing with the consequences of the sequencing of the legislation because it started as a final, followed by the taxonomy and ended up with this study and the reporting standards on those see a study.

Dr. Esther Wandel

In an ideal world, I guess we would have turned the around owned and would not face some of the problems of coherence and inconsistency we are facing now. So I think this is certainly something which needs fixing and is is making a true and make to ensure that coherence and consistency work would be certainly also some of the major tasks for the next legislative cycle.

Dr. Esther Wandel

So there should be a lot of focus, I think, on focusing on streamlining and consolidating. I think as if we are also is exactly one of the issues where we have to look into this much more closely because it came first and was not followed by the other pieces of legislation. But as I said, I think it's very important when we look at the SFO all to take into account how it has developed already in a kind of de facto labeling system, which is used by the industry even for advertising.

Dr. Esther Wandel

But at the same time a lot of uncertainties around it. So I think this clearly needs fixing on the other areas. I think let's talk a bit more maybe about the taxonomy. I think it was always conceived to evolve, right? So it was always conceived as a kind of almost living document, taking into account the progress of technology, taking into account that it is necessary to include more and more activities, which is important, which we recently saw with the last edition of the taxonomy.

Dr. Esther Wandel

And that is something which needs to continue over time. So I think this is something which has to evolve over time. The third challenge I think at the same time is obviously not to end up with too much burden, which too high administrative costs and was too complex rules and making the application difficult. I think this is another challenge.

Dr. Esther Wandel

It has been done, I think for the best reasons in the world. What I think coming back to my second point, there is something to be done in the next cycle in order to bring that more incoherence and makes this practically work better.

Jason Mitchell

It is interesting and I agree with you there are a lot of critics around SFR and the EU taxonomy, but specifically around SFR, and I actually find some exception with that because they tend to undervalue or overlook the powerful precedents that are being stuck around methodology approaches, data binding commitments that I think are incredibly important, and the sequencing point to take your point.

Jason Mitchell

There have obviously been a lot of criticism around that. But to me it's interesting because when you look at other jurisdictions, I think specifically the US, obviously the SSA is rolling out in tandem the climate related disclosures for both corporates and investors at the same time. So even from a U.S. perspective, you don't get a more natural kind of sequencing of of corporate disclosures followed by investors.

Dr. Esther Wandel

As I mentioned at the beginning, I'm obviously I mean, I'm not really in charge of that at the Ministry of Finance as our colleagues of the Ministry of Justice. But in our overall coordinator role here, as I mentioned in the beginning on sustainable finance, we look obviously at the burden which all that creates and we are constantly explicating be proportionate, make it practical, let not be the perfect, be the enemy of the good, because the granularity which has again, for the best reasons in the world at which has arisen, clearly creates challenges, particularly for the real economy, particularly when you think about SMEs which are not directly involved but which are part of the value

Dr. Esther Wandel

chain and have to deliver sometimes the same data as the big corporates. So there are lots of issues to be solved I think, in the future. I mean we have just the first edition of the Use our standards, which are probably released soon, but there is a lot of work until all of this will be come into practice.

Dr. Esther Wandel

And we have, I think, vigilant that this remains all feasible and practical in view of the aims we want to achieve. I mean, the reporting and all that should not become an purpose in itself. It should always have to drive the transformation. But I would talk about that a bit later.

Jason Mitchell

I do want to touch on one area. Germany adopted its first sustainable finance strategy on May the fifth, 21, and it proposes action in four areas transition, finance, inclusiveness, resilience and contribution of the financial system and global ambition. How does the Finance Ministry reconcile its early focus on transition finance, an area that you've already brought up repeatedly, and the performance of that with the idea that the EU, SVR does not specifically address transition?

Jason Mitchell

In other words, how is Germany working to drive transition finance and even areas like climate technology solutions outside of European Commission level regulations?

Dr. Esther Wandel

This is indeed an issue that the transit shown is not yet sufficiently addressed. What happens by the EU? When you talked about the as of your ICAO, also the taxonomy, which is obviously very much dividing the world into green and not green, we appreciate a lot that the Commission seems increasingly also aware of that with the latest clarification.

Dr. Esther Wandel

They have done a great effort to show that there is always a room for transition under the existing taxonomy. But I think we have still to go further. You know, there was under discussion of having maybe an amber taxonomy or a transition taxonomy or something like that. What we would be very keen of solving this issue on transition, not always only by reverting back to another form of taxonomy.

Dr. Esther Wandel

This is conceptually certainly an option, but we think we should look also in other options. And we think one more. One very, very important option is the idea of transition plan, something also other jurisdictions are working on, like UK, because we see here some advantages they would allow to define corporates and financial players to define their own paths, which will net 0 seconds.

Dr. Esther Wandel

They can be used also particular by corporates but also by financial service systems for their own management and their own steering of of the processes towards a net zero economy. And I think this is also a very strong argument. It's a market based tool to services who receives the information to make its own judgment call on whether it sinks the cost way of the firm is credible or not.

Dr. Esther Wandel

And this is why we drive that very much and bring it also in the international fora and have also asked, for instance, our advisory committee also to work on that because we think this is a much better option than dividing this world into green and non-green.

Jason Mitchell

Yeah, I completely agree. I mean, it feels like institutional investors are in this sort of strange place, this dynamic where when it comes to transition on one side investors have to work towards, like you said, a binary taxonomy output that's still relatively undefined. On the other side, it's an SFD are essentially do it yourself project around self-determination that I think sometimes lacks rigor.

Jason Mitchell

But if transition is a blind spot for the European Commission again, is there is there anything that the German Federal Ministry of Finance or can Germany do to fill out this area at a national level?

Dr. Esther Wandel

On national level, we are always very cautious. I mean, we see ourselves and more as a driver of thoughts and ideas to bring them on a European or even global level, because I think we have to be very aware that we are acting here in a global level playing field, and we think that we cannot do things on our own, on our own remit and on our own borders alone.

Dr. Esther Wandel

We can maybe develop and help drive ideas and bring them to the international fora. I was between the EU Commission and this is also something which we will be doing what we don't think that we should be doing things only in the borders of Germany because we think that would be not helpful for global failing fields and it would not helpful also for the transformation, because the transformation and the climate change does not stop at borders.

Dr. Esther Wandel

So we have to act globally, or at least European, ideally globally here. And this is also why we engage so much in the G7 and G20 discussions as we have also laid out in our strategy. And again, I think I'm a bit hammering on that because we also think that investing, as you said yourselves in green projects or firms or corporates which are already green, will not be sufficient for our transition to the world economies.

Dr. Esther Wandel

We need the money to accompany those which on that pathway and have to set out all the intermediate steps. And this is specifically true for those sectors that still are a long way from green but are vital to the functioning of the economy. And that's really very keen. What is also important is that we have both and that is also something I'm constantly hammering on is the financial services industry as well as the eco monuments is a piece on the table.

Dr. Esther Wandel

When we discuss these issues because keep in mind a lot of reporting sits with real economy to provide the financial services industry with the data they need. But the current developments have brought about an unprecedented level of sustainability information and that needs to be useful, proportionate and practical in order to be managed. This is why we think we need to have both them on the table to understand the respective needs to understand, but also to understand the respective limits that can be sometimes a bit burdensome in terms of the process.

Dr. Esther Wandel

But it seems to me absolutely inevitable. By the way, I don't think that it's really a blind spot with the commission. As I said at the beginning, I think they're really aware that it is something which needs more focus and more attention in the in the future. But I think we need more on that. And again, how is CPR a role so constantly reminding the EU Commission or EU partners of the need and importance of transition engaged in the international fora on that, working actively on transition plans and bring hopefully some good ideas on the table, working also.

Dr. Esther Wandel

That is also something which is very important, I think. On the consistency between the needs of the financial services industry and the corporates, given we have already some legal requirements and the recent agreement on CSR banks have to produce transition plans. There is a discussion of the See Istrabadi ongoing where it's also laid out that corporates need to have transition plans.

Dr. Esther Wandel

They are the SSP has put it in their standards, so we have to make sure that this at the end works. And that is also something where we see our role and constantly reminding and bringing this idea to the table because otherwise we get again into this shift of burden from one side to the other, which is not helpful, is the ultimate goal.

Jason Mitchell

Are there any lessons to be taken or borrowed from the UK, which you mentioned earlier? Is it something like the SDR, which obviously includes transition? Is it something like the Transition Pathway Task Force that the UK has set up?

Dr. Esther Wandel

Yeah. So I think we are looking particularly and looking forward also to the results of the work of the transition task force because we find it a very interesting concept because as I said, they develop as a market that concept which I think is a good lesson and something to be looked at. We like all those idea that they make it mandatory in the sense that there should be a short form mandatory.

Dr. Esther Wandel

So if you use if you publish or if you do a transition plan, then you have to follow certain rules. It's not absolutely necessary to publish a transition plan. I think this is also a very clever way because I think that leaves, again, market forces to drive to ask maybe critical questions to the corporate or to the firm why they don't have a transition plan.

Dr. Esther Wandel

So I found that a very clever way and very, very keen to keep on with our dialog with then and looking to the further results, which we are happy to also to analyze further for the work in the European Union and also in the global fora.

Jason Mitchell

Euro gives you an incredible amount of policy exposure. How do you see harmonization evolving for sustainable finance regulation, even on an EU basis, which I think you noted, there's a marked difference in how some national regulators or supervisors interpret SFR and position it alongside their own labels. It seems like there's certainly been some gold plating across Europe. So are national labels a permanent feature or a temporary necessity until the European Commission develops its own EU wide labeling regime.

Dr. Esther Wandel

Keep in mind that sustainable finance regulation is part of the financial regulation, and we see constantly progress towards more harmonization. So I think that will happen also with the area of sustainable finance. And as we just have both noted, these differences in interpretation and understanding, for instance on the CFP, also that there's more work to be done also on convergence, developing common understandings on certain concepts.

Dr. Esther Wandel

Product labels for sustainable finance are not yet addressed by EU legislation, and so in a way it's natural that national labels emerge. And I find it quite interesting that you put these national labels in the context of potentially gold plating the SFA, because I'm not entirely sure whether I share that view. I think the problem is more that maybe because the SFA are a has evolved into this de facto labeling system which people use de facto without never having fully defined the borders and the content it is, sometimes the perception arises then that they are national labeling systems alongside, and I think it's very important to keep in mind as if the was never conceived

Dr. Esther Wandel

to be a product label or something like that. It was a disclosure regulation. So in a way it's natural that national labels where a body or an authority puts a stamp, can sit alongside. Nevertheless, I think it's it's very important to have more convergence for certain features of the sustainable investment market. Therefore, for instance, we are very glad that in the latest agreement uses an IV and D on the as there are as my guidelines.

Dr. Esther Wandel

For instance, on font names. Obviously we have still to look at the overall deal. It's not yet finished. What but that particularly point I think is a good development because I think that will help one element in that area to have more convergence and understanding. Again, I don't think that font names our label. They are, at least from the German perspective, part of socialization process.

Dr. Esther Wandel

But to get a common understanding, a common approach you think is very important because in the absence of EU convergence measures, I think also what is doing their own work if they detect problems in their market. Jason If I may, I would like to draw the attention of another piece of work our advisory committee is doing is not properly related on the SDR.

Dr. Esther Wandel

It's not a product label either. It's but it's sitting in the context of that, which is the idea of an ESG scale or ESG indicator. If it's similar to the indicator we use to know for funds on other product in the kit. And we find that a very interesting piece of work because it shall help to bring more clarity, particularly for retail investors in terms of the sustainability content of their investments.

Dr. Esther Wandel

It would relate. And that's, I think, also a good idea to the MiFID and ID preferences. So it would kind of slip into that process and it would be a tangible, visible piece of, Yeah, indicator, which shall we tell investors? It's still taking into account the SFD as it stands. It's not something you want the US feel it would more sit in the context of trips, but I like mentioning it here because I find it a quite interesting and useful attempt to bring a bit more clarity on the table.

Dr. Esther Wandel

But it's not a label that I would like to stress as well.

Jason Mitchell

I'm glad you you brought this up. It sounds like a novel approach. Will it be driven by the EU taxonomy, for instance, in terms of understanding the content within a portfolio?

Dr. Esther Wandel

So again, just to be very clear, it's not a national initiative. It's an idea which you would like to bring on the table in the European debates. And I think it's a bit premature for me to stir because it's not my work. It's an advisory committee which would do the work. I think the way they do it, they try to bring in different perimeters to the table.

Dr. Esther Wandel

Obviously, the taxonomy, particularly in the dark green space, will play a role, but they are still setting the final touches. So it's a bit premature to make the big announcements and I would like to let them do the job because they are the masters of ceremony, not not us at this stage.

Jason Mitchell

Great. I want to circle back to the greenwash in point that we discussed earlier. How successful do you think current regulation is in mitigating greenwashing risk and how do you think about the role of enforcement in the context of greenwashing? It seems like there are two very different enforcement models at play. The EU has driven ESG regulations, but obviously appears to be much slower, including national regulators to enforce.

Jason Mitchell

While an agency like the FCC, for instance, in the case of DWC in Germany, has been much quicker to enforce under traditional mis selling rules, but a lot slower to regulate. Where do you see Germany landing?

Dr. Esther Wandel

One thing, which is I think always important when we discuss the issue of greenwashing, is that there's no definition of greenwashing or even a green common understanding of greenwashing, I think, in the European Union. So I think it's good that Esma has started looking into this and tried to see what different regulators and authorities understand and how they would approach that concept.

Dr. Esther Wandel

So I think this is a very important addition to the piece of work. And therefore the question again, whether the regulation is successful or not will also depend on what you understand on the greenwashing. The other point you made on the approaches, I think this is not only, again, an issue of sustainable finance. I think this is something also which exists in other areas.

Dr. Esther Wandel

I have to say, for me, both approaches are more complementary, but in a way I'm now entering into turf, which is not really mine because this is really for Baldwin to decide how and what they sanction. Coming back to this operational independency point, we are now at the heart of that. So it's really that job to see how they go on with these things.

Jason Mitchell

Then moving on, what are the implications and unintended consequences of creating disclosure frameworks and taxonomies? In your view? Does this inevitably lead to picking winners and losers, i.e. steering capital? And does the Ministry of Finance ever worry that this potentially creates pricing distortions in the markets that threaten financial stability? As an example, ESG ratings might be an example of that.

Dr. Esther Wandel

I think we have always to be cautious with these with these things that they don't exist, that that that we don't create green bubbles or something like that. I think that is something we're always very, very vigilant. And I think financial stability as part of the sustainable finance agenda was always paramount for Germany. You'll find that even in our current business agreement, which clearly sets out that Germany wants to become one of you being up on sustainable finance, but always oriented also at the leitmotif of sustainable financial stability.

Dr. Esther Wandel

And I think in a way, and that is always a trade off, you need that also to evaluate, for instance, climate risks. You need good transparency and data, but for instance, also to complement that question for the same reasons to avoid your bubbles or overconcentration. We have always declined a green supportive sector also let down in a coalition agreement, which I think is is clearly showing how we approach that debate.

Dr. Esther Wandel

And we still stick to this principle.

Jason Mitchell

I wanted to change lanes and move on to call it a more philosophical track. In my mind, it's one of the most intellectually interesting discussions in sustainable finance, which is about materiality. It obviously remains a divisive issue despite some progress over the last couple of years. And I appreciate that you've given a lot of thought to it. There are clear efforts to align standards like Yes or CSR DE with IASB and its global baseline, but a fundamental divide still seems to exist, particularly between Europe and U.S. approaches.

Jason Mitchell

How do you see this materiality debate evolving, especially weighing that need not to overburden reporting with future demands like biodiversity that are intrinsically impact oriented?

Dr. Esther Wandel

I make it less a philosophical question and again a more practical question in a way, because we were always very keen on not putting too much emphasis on these alleged or potential divisive views. I mean, I know there has been a lot of talk about the differences between the approaches and that one would be less ambitious than the other.

Dr. Esther Wandel

We have always approached it from the other side and have always said, look more at the similarities. We have always also agreed that the materiality, the European approach is important because we understand it's also important for many investors as recognized not as a C or D, but we always also thought that the global baseline as developed by the ISS does not question the double materiality approach.

Dr. Esther Wandel

The building block approach, they call it now global framework of the ISS. B allows supplements and incremental changes and we were always focusing on this aspect of interoperability. Exactly. In order to avoid in to the philosophical gap, we always said, let's work on all these areas which overlap, which are similar, let's work here on alignment. And therefore we think it's absolutely crucial that F ROC and ISS work on their alignment and we will always hope that they continue that work.

Dr. Esther Wandel

But at the same time, let us not put much emphasis, always constantly on the differences and the gaps. This is also what we focused on in our G7 presidency and what we will continue to do. So we have also, with our successful bid for hosting the ISS in Europe, I think we have also sent a strong signal that this is that this is very important to us.

Dr. Esther Wandel

And as I said, we have to approach that always more from this interoperability side. I think, however, we are moving in a slightly different space now on the topic, I think we cannot only talk about interoperability alone anymore. I think implementation now is also important of what the ISS be does ideally across the globe and that is now something we will also to continue to underline and emphasize in the international fora.

Dr. Esther Wandel

And therefore we were very pleased to hear that IOSCO has endorsed the ICC standards a couple of days ago, which would not have been possible in my view, without buy in also of the US side. As you see, we have is fully never overstretched this alleged or potential gap or difference in approaches, but more looked at the outcomes because we thought that would bring the debate much more forward and the CSO has its double materiality approach.

Dr. Esther Wandel

So that said, as regards biodiversity, I think that's a very interesting point because a I think it's even more difficult to measure because I think climate is still much more measurable. So I think this is another challenge in terms of reporting and, and giving a reliable data all at the same time. We know that the ISS has already announced that they will be working also on this, and we hope that they pick up work because keep in mind also the sea is audiences, the rest and that's again have that also as part of their work.

Dr. Esther Wandel

So if you want to ensure, again as much as the global comply and globally a global playing field and global consistency, it would be important to work for the ISS beyond that again, to avoid gaps and problems with the works is ours is doing it is a challenge in terms of diminishing gaps and it's a challenge also in view of of avoiding credit burden.

Dr. Esther Wandel

So I think proper time should be given and proper analysis and how it's done. But I think as soon it's on the table, I think it's again paramount that the two bodies work together again. And I hope that the work of the TFT as of the task force of Nature related disclosures would be a good source of inspiration here and help to achieve as much alignment as possible.

Jason Mitchell

I agree that's a really sensible approach to focus on implementation and interoperability. And I agree with you. It's it's great to see the IOSCO endorsement of ISB, but to fully disclose, I've had some time on an F frac steering lab group several years ago, and I'm also on the SSP Investor Advisory Group. And I always feel a little bit torn because I believe in a global baseline, but I do worry a little bit how SSP stays up with mandated regional regulations that some are much more ambitious and will only grow more rigorous over time.

Jason Mitchell

I'm specifically talking about the evolution and periodic fitness tests behind something like NFR de, which is now grown into C a certain s r s.

Dr. Esther Wandel

Yeah, no, I'm not denying that challenge and I am quite aware of that. I think that SSP has a job to do. I'm very clear about that. I think it's not, it's not trivial, that job, I think given that it is in the legislation, is also maybe the user's work would slow down, but I don't think so because it's I amended, mandated by the legal texts.

Dr. Esther Wandel

And B, I think there's also appetite for even more data. So maybe you can do it in a more in the process I think can change and should potentially change to be more inclusive, to have more people on the table, maybe also, again, focus, maybe have a bit more principle based on more generic pieces of information and maybe avoid the granularity.

Dr. Esther Wandel

I think the work will be continuing and that's why I think the ISS needs to keep up with this despite all the challenges. I'm quite a well said and at the same time I also sense that in some other jurisdictions, sometimes the other environmental goals, such as for instance biodiversity or even others, are sometimes more important to them than the climate issues.

Dr. Esther Wandel

So in a way there is maybe also a chance to do some more work here in Europe. Aligning it was easier said. But as for us, it's important that we don't end up with some practical requirements that they are too burdensome and that for global players they have to do double reporting or duplications, which would be confusing to investors.

Dr. Esther Wandel

That's what we care most about.

Jason Mitchell

Final question The finance industry to be a very cautious one. The real time regulatory guidance and revisions to SFR have driven both upgrades and downgrades, which have had the potential of undermining the credibility sustainability products. I think we all recognize that. But what's your message to the investment management sector for how to understand German Finance Ministry expectations in sustainable finance?

Jason Mitchell

And particularly going to your point around transition in the real economy driving that?

Dr. Esther Wandel

Jason, if you allow I would broaden the messages a little bit and go a little bit beyond the investment community, if I may. So so I think I would like to pause the following manage A we want to create the right regulatory and institutional conditions for the transition in the EU and ideally globally. We absolutely have to make sure that there is a global playing field when we tackle this issue because the EU is competing with other jurisdictions.

Dr. Esther Wandel

We touched upon that and we need to make sure that we do not lose track and that we would be continue to push for that. We see, however, also a lot of challenges and that development because the net zero economy I think offers also the growth opportunity of the 21st century. We have not so much talked about the challenges today, particularly in combination with digital technologies.

Dr. Esther Wandel

It is the basis for innovative new business models and jobs. And this is also something we are quite keen on in balancing out all these regulatory requirements. And as I said, we are arguing for proportionate, practical and manageable regulation.

Jason Mitchell

Excellent. So it's been fascinating to discuss how the German Federal Ministry of Finance is evolving its sustainable finance strategy, why it's vital to drive transition finance into the real economy, and what harmonization holds for sustainable regulations and standards. So I'd really like to thank you for your time and insights today. I'm Jason Mitchell, head of Responsible Investment Research at Mann Group here today with Dr. Esther Window, head of Division for Investment Funds and Sustainable Finance at the German Federal Ministry of Finance.

Jason Mitchell

Many thanks for joining us on a sustainable future, and I hope you'll join us on our next podcast episode. Esther, thank you so much. This was a great conversation today.

Dr. Esther Wandel

Thank you, Jason, for taking the time and offering me the opportunity.