This article was first published in German in Tagesspiegel Background
The effects of the Russia-Ukraine war must not delay the sustainable, climate-neutral restructuring of Germany and Europe. On the contrary: the green transformation must be accelerated precisely for security and geopolitical reasons, explains Lutz Diederichs, CEO, BNP Paribas Germany. Politics, business, and society should jointly raise the capital required for this, as well as explain to the wider public why the effort will be worth it.
The Intergovernmental Panel on Climate Change (IPCC) calculated in 2014 that if we do not reduce our greenhouse gas emissions, we must assume a global temperature increase of between 1.6 and 4.7 degrees celsius by the end of the century, compared to the period between 1850 and 1900. The dramatic consequences for our planet will include extreme heat waves, severe storms, numerous natural disasters, widespread water shortages and increased famine. This is not scaremongering, but – as of now – a scientifically based prognosis.
Politics, business and society know exactly what they can do to at least slow down climate change and its consequences: cut emissions, conserve resources, rely on renewable energy sources, and create climate neutrality wherever possible.
In short, a more sustainable way of living and doing business. But that means nothing less than a transformation in all areas of life. An industrial revolution of gigantic proportions.
Banks as catalysts for change
All actors involved in the transformation have accepted this challenge and initiated numerous far-reaching measures in recent years. Structural energy savings, the expansion of renewable energy, the introduction of ESG rules and taxonomy are just a few topics to mention here. Business and industry have also set a good example. BNP Paribas, for example, was the first bank in the world to create a consistent set of rules for more “green” investments with its own sector policies, before the sustainable finance regulation.
In 2021 alone, we invested almost €20 billion in projects to expand renewable energy. In the future, we want to continue directing capital flows in such a way that they support companies in transforming their business models; banks play a key role in this process. Financial institutions are catalysts for change and drivers of the transition by providing financing and comprehensive advice to companies as a partner in their change management process, and supporting them in the further development of their business models.
In the future, we want to continue directing capital flows in such a way that they support companies in transforming their business models; banks play a key role in this process.Lutz Diederichs, CEO, BNP Paribas Germany
Within the current debate, however, the voices questioning the ongoing transformation towards a more sustainable economic system are increasing. Not because they question the fundamental need to combat climate change, but because they are calling for a “political course correction” based on current realities, such as the political and economic developments surrounding the Ukraine war, the energy crisis and rising inflation. But what could be more “realpolitik” than securing the basis of our economy and life and taking a more sustainable path?
At a recent special session of the German Bundestag on the Ukraine war, Chancellor Olaf Scholz called the current period in history a “turning point”. He’s right about that. However, we must not lose sight of the efforts to achieve greater sustainability from the point of view of security policy. A focus on “hard” security and geopolitical realities must not lead to the energy transition being pushed forward more slowly.
Reducing unsustainable dependencies
Considering energy supply as an example, we can see that it is absolutely necessary from a security and geopolitical point of view to reduce our dependencies and, above all, to rely on a decentralised local supply – with storage options in the medium term – for the expansion of renewable energy. This is sustainable, resilient, and strengthens Europe’s sovereignty. Turning away from this path would also cause further damage. Because without more sustainability in all areas there can be no successful fourth industrial revolution. Overall progress would be called into question.
Against this backdrop, the “green” transformation must be continued and even accelerated towards a more sustainable economy, industry and society. This applies on a European level as well as to the individual EU member states. It is about the crucial question of whether Europe, as proclaimed, will assume a leading role in the transformation, or whether it will be overtaken by the USA and Asia. Innovation, new technologies and thus the jobs of the future would be created elsewhere in the medium term.
To ensure that Europe does not miss this opportunity, I think there are three things in particular that we must tackle immediately:
First, we have to be honest: all of this will cost a lot of money. It is therefore necessary, in addition to the positive long-term goals that we want to achieve with the transformation, to openly communicate about how to get there. This way will be challenging. You don’t get a fundamental structural and behavioral change at a bargain price. When the stakes are high, there is usually a lot to invest. However, you will only be able to convince everyone to implement the transformation quickly if you speak to each other clearly and honestly. This is one of the basic requirements in free and democratic societies, especially in the midst of a historical turning point.
State and economy must cooperate
Second is what follows from this: there will be no pure market solutions. This is not a call for a “subsidy state”; quite the opposite. The simple fact that negative external effects on goods that cannot be priced in make pure private-sector efforts impossible. The state must therefore cushion these effects in the short term and accelerate the change through targeted support programmes. This applies both to the social sphere and to the economy. There are products of the future, such as industrial 3D printing, which are just as important for the digital factory as artificial intelligence or the Internet of Things. However, the conversion from existing manufacturing processes to 3D printing is very complex and cost-intensive, and often only completed slowly. The state can support this with temporary measures. This is also nothing new here: major phases of transformation and the push for disruptive innovation have always involved government support.
Finally, EU Member States and their economies need to combine public and private capital so that we can invest in more advanced, sustainable projects and research. Neither the economy nor the state will be able to do it alone. We should finally break away from these often dogmatic positions. Strengths must be combined so that Europe can establish itself as a leading location for sustainable innovation and technologies. For example, more transparent PPP (public private partnership) models, extensive funding solutions, targeted tax incentives and the finalisation of the banking and capital market union, in order to finally achieve a uniform European internal market for financing and capital flows. In the end, everyone benefits from the resulting new business models: national budgets, citizens, companies and markets.
Showing more courage together
I am convinced that we will master the challenge of a more sustainable economy and society. It is essential to counteract any attempt to soften or slow down the “green” transformation. Only an acceleration of change will slow down or stop climate change, and future generations will not forgive us if we do not continue to push this forward. We should all show more courage together.