Financing climate protection with own savings

Mr. Popovic, you participated in the TEDx talk. What was that experience like for you? How did you come to participate there?

Tobias Popovic: The background was that I was approached by the TEDxStuttgart team via the M4_LAB team as to whether I could imagine doing a TEDx Talk. The convincing argument for me to participate was that the HFT can become more visible with its research and transfer topics. And if I can contribute to that, then I'd be happy to. But it was also a very preparation-intensive time.

What does it mean to invest sustainably? And why should we do it?

Tobias Popovic: Our money or the capital market are basically neutral to begin with, i.e. neither good nor evil. It always depends on what they are used for. Both can have a positive economic, ecological and social benefit – or impact. But unfortunately, they can also have a negative impact. Not many people are aware of this. Various studies show that the assets of the average customer in Germany, which are invested with conventional banks, insurance companies, and investment companies, almost automatically finance things whose social and ecological benefits are not so positive, such as nuclear energy, weapons, armaments, pornography, coal-fired power plants, and other things. The nice thing is that there are now very consistent, sustainably oriented banks. There are, for example, numerous well-founded test reports or the first seals of approval, also for investments in the fund sector. And perhaps most importantly, numerous studies show that sustainable investments do not have a worse risk-return ratio than conventional investments.

How do you take up the topic of sustainable finance at the HFT?

Tobias Popovic: Building on research activities in the field of Sustainable Finance and Environmentally Oriented Logistics that have already been ongoing for more than ten years, as well as an increasing involvement in inter- and transdisciplinary research projects, Andrea Lochmahr and I initiated the Center for Sustainable Business and Management (ZNWM) in 2013. At the time, this still seemed a bit exotic to some. In the meantime, however, this has changed. In the meantime, we are increasingly perceived and requested as a cooperation partner by external parties. In Sustainable Finance, for example, we are developing financing solutions in the area of sustainability. The aim is to increasingly use and tap the capital market to finance investments in climate protection.

What could something like that look like?

Five years ago, the Climate Neutral Campus project also focused on the question of how we could succeed in developing our university campus in the direction of climate neutrality. The background to this was the goal set by Minister President Winfried Kretschmann when he took office of having a climate-neutral state administration by 2040. This requires extensive investments that cannot be financed solely by the state in view of the high level of public debt. Financing solutions that we developed included, above all, a green bond concept for financing the energy-efficient refurbishment of public buildings. But we have also further developed other instruments. For example, contracting, crowdfunding and cooperative solutions. In the case of a university cooperative, all university members and "Friends & Families" of the HFT could become co-owners. This would not only enable them to play an active and democratic role in shaping climate protection, but they would also participate in dividend distributions as soon as income is generated.

How did you actually come to your research topic of sustainable finance?

Tobias Popovic: I became interested in this topic during my studies, for example in lectures such as environmental economics, where we were already introduced to the topic of CO2 taxes and certificates, or environmental and business ethics. I was also lucky enough to work as a research assistant at the institute of Prof. Ulrich Steger – a pioneer in the field of environmental management. But the financial crisis ten years ago also strengthened my resolve to look for ways in which money can provide ecological and social benefits in addition to economic ones. After all, the financial crisis was ultimately triggered by an unsustainable, exaggerated quest for returns and accelerated by the bankruptcy of the system-critical investment bank Lehman Brothers. Moreover, a one-sided focus on shareholder maximization leads to undesirable developments. I was able to experience the financial crisis live in my "former life".  At that time, I worked for DZ BANK in Frankfurt and as a member of the Board of Directors of the Central Bank of Spanish Cooperative Banks in Madrid. An exciting time with a steep learning curve that made me think about one thing or another.

What is your personal motivation to work on sustainable finance?

Tobias Popovic: On the one hand, it's the scientific perspective on climate change. The facts seem increasingly overwhelming and every day we read new bad news with regard to climate change, but also, for example, species extinction. Some climate researchers say we are stumbling from one worst-case scenario to the next. Meanwhile, climate change is also increasingly threatening the economic system: In this year's "Global Risks Report" presented at the World Economic Forum in Davos, all of the top 5 risks were ecological risks for the first time. In other words, risks that are directly or indirectly related to man-made climate change. As a family man, I also view the issue against the backdrop of intergenerational justice. In the end, we are all only guests on earth and have borrowed the planet from our children. The question is, in what condition do we want to leave the earth?

What about the willingness in Germany to invest sustainably?

Tobias Popovic: According to various studies, 40% of private investors in Germany would like to invest their money sustainably. However, the current market share is only about 5%. Assuming that only 20% of bank deposits would be invested sustainably, that would be about 500 billion euros. That would be about 1.5 times the budget of the German government in a normal year. A huge leverage.

What political initiatives are there to create incentives for sustainable investment?

Tobias Popovic: Within the EU, there is now tailwind from the "EU Action Plan for Financing Sustainable Growth". The first overall objective is to redirect capital flows into sustainable investments in the real economy. All financial service providers are being called upon to do this through the ten packages of measures in the action plan. In addition, the EU Green Deal, for example, points in a similar direction. My hope is that this will set us on the path to a social-ecological market economy. If corporate financing and the cost of capital are also dependent on sustainability criteria in the future, this will inevitably have an impact on the strategies and business activities of companies in the real economy.

What is your vision in terms of sustainability?

Tobias Popovic: I have the hope that we will all – after all, as consumers we are the market – behave much more sustainably in ten years' time. A first starting point – in addition to sustainable investment – could be to use a climate calculator, for example from the Federal Environment Agency. There you can see your own CO₂ footprint with little effort and in which everyday areas it can be reduced and how. I also hope that we can harness the potential of the capital market to achieve a major transformation toward a social-ecological market economy. There is also a lot of innovation potential in this – transformation through innovation!

To what extent does your vision fit in with the HFT's mission statement?

Tobias Popovic: The new mission statement process has just been initiated and is also not my responsibility. In this respect, I cannot say much about it. But my hope would be that the university also develops further in the direction of sustainability. Preliminary work has been done on this. During my time as sustainability officer, we developed the so-called design fields for sustainability at universities in the network of sustainability officers in Baden-Württemberg in 2012. In the field of operations, for example, we at HFT were one of the first universities in Germany to establish an EMAS-certified environmental management system. Of course, I was very pleased that we were mentioned in a report to the World Economic Forum at the beginning of 2017 as one of 30 best practice examples for sustainable universities worldwide.

Will this also change the economy if graduates from universities have sound knowledge in the area of sustainable finance?

Tobias Popovic:In the network of ethics officers at universities in Baden-Württemberg, we are concerned to see universities as part of society, whose task it is also to train responsible specialists and managers; in other words, to enable young people to deal with complex challenges in a responsible and forward-looking way, so that they can develop meaningful solutions for society.