Germany's public banks are grappling with impending sustainability reporting requirements set to take effect in 2024. “We are preparing for it with considerable effort,” says VÖB President Eckhard Forst in an interview with the Börsen-Zeitung, referring to it as a “precautionary measure.” Just a few months before the launch, it's still unclear which entities will be subject to the new EU regulations. “We need clarity," he adds.

Next year, non-financial sustainability reporting for companies above a certain size, balance sheet total (20 million euros), and annual turnover (40 million euros) will significantly expand. This is because the Corporate Sustainability Reporting Directive (CSRD) will be gradually implemented from 2024. Many banks will also need to adapt to these changes.

Forst criticizes that the Sustainable Finance laws are not always harmonized properly. As an example, he mentions the sustainability reporting and the taxonomy. “At a first glance, one might say they have a similar purpose. But that's deceptive because their application is very different, as well as data collection and the possibility to make assumptions,'" he points out.

Criticism also comes from non-governmental organizations such as Better Finance. One of their main criticisms is that the CSRD does not ensure reliable and comparable sustainability data, which could allow companies to downplay the impact of their business activities on the environment. This threatens to undermine Europe's reputation as a promoter of a socially just and environmentally sustainable economy, Better Finance says.

The banking industry is struggling with the fact that sustainability reporting requirements are not seamlessly integrated as if made from one piece, especially considering the size of companies. Some small and medium-sized enterprises may not have any data available at all. Regarding the extent and exceptions of reporting requirements, implementation deadlines, and reducing bureaucracy, VÖB president Forst believes there isn't enough focus on ensuring that the Brussels regulations are practically implementable.

Forst also calls for a focus on feasibility in the context of the taxonomy. He points out the problem of the binary logic of the taxonomy, which aligns with the Paris climate goal to limit global warming to 1.5 degrees. He asks, "Do we want to cater to those who already meet the 1.5-degree goal and make marginal progress with relatively high investments? Or should we also consider those who are currently on track for 8 degrees and could come down to 4 degrees with the right investments?"

According to Forst, banks feel "completely left alone by Brussels" when it comes to measuring the impact of investments in climate protection. This includes questions like how much more environmentally friendly a new machine is. "The impact cannot be effectively measured solely based on investment sums. We need criteria that substantiate the effects of measures." Currently, every bank, insurance company, and capital-raising entity is establishing its own rules and making individual assumptions.

A novelty in the capital markets is the recently adopted green bond standard, which will be implemented across the EU in a year. Forst advocates for a similar quality label for the issuance of bonds based on social criteria. He states, "I wish for a social bond standard that is well-designed and achievable. A principles-based, voluntary framework for social investments would support market standardization. However, practicality is key!"

The CEO of the state-owned development bank, NRW.Bank, mentions that Green Bonds are in high demand, with investors eagerly seeking them. He also notes the significant growth in the social bonds market. The NRW.Bank aims to serve both areas. Social bonds primarily focus on projects related to social housing and healthcare facilities. Forst's clear stance on actively participating in the social bonds market stands out, as some development banks are hesitant in this regard.

Within the VÖB, there is concern that the methodological issues of the green taxonomy might be transferred to a social taxonomy. Consequently, they currently advocate for guidance rather than strict regulation in this context. On the other hand, the topic of governance in the ESG (Environmental, Social, and Governance) sustainability framework has not been a significant consideration for investors thus far. Forst points out that "good corporate governance is perhaps the most important topic for retaining and attracting employees in the coming years, but it is not yet a significant factor for bond issuance in the capital market."

The business of NRW.Bank and other development banks is currently running at a slow pace. Forst states, "This is due to investor caution, not a lack of funds." Companies are hesitant and uncertain due to economic and other factors. "Individually, this is probably the right decision, but it's challenging from an economic standpoint."

Some economists and politicians have warned of impending deindustrialization due to higher energy prices. Forst considers this perspective to be exaggerated. He acknowledges that the U.S. subsidy program, the Inflation Reduction Act (IRA), has a certain pull, but he says, "We are far from any deindustrialization."

Regarding a permanently subsidized industrial electricity price, which is a topic of controversy, Forst is critical. He mentions, "Many industries are currently in a critical situation, so providing limited and transparent help for these companies makes sense. However, considering tight public budgets, this couldn't be sustained in the long term." It's crucial to quickly gain clarity, as a lack of it can lead to further delays in corporate investments.

Eckhard Forst has been the President of the Federal Association of Public Banks (VÖB) for four and a half years. The VÖB's general assembly has extended his mandate for three more years. It is expected that his tenure will conclude in 2025, as his contract as the head of NRW.Bank, the development bank of the most populous state in Germany, expires at the beginning of 2026. His successor at NRW.Bank has already been determined. After previous positions on the board of Nord/LB and at Deutsche Bank, he is gradually approaching retirement.