What next?

Helaba's Chief Economist Dr Gertrud R. Traud on sustain­able finance and the eco­nomic impli­cations of COVID-19

May 2021

What would happen if companies responded to their experiences during the pandemic by switching to much more local supply chains?

There would be a price to pay for such a decision in the form of lost prosperity: globalisation and the utilisation of relative cost advantages and technological specialisation in different regions and countries raises incomes worldwide. The pandemic has certainly caused us to revisit some of our prior assumptions. Many companies now have a much better idea of the risks inherent in the just-in-time model after seeing borders suddenly closed, for example. That does not mean it makes sense to design production operations solely on the basis of exceptional situations like a pandemic. Companies should avoid cluster risks in the procurement of input materials as far as possible though simply for economic reasons. Supply chains can be optimised. Free trade should not be obstructed by economic policy measures such as customs duties and other non-tariff trade barriers even in a pandemic, but that does not preclude building up larger stocks of emergency equipment like protective face masks.

What will it mean for the banks if regulators start to pay more attention to climate risks in the future?

Europe's banks will probably have to up their game: the regulators will be taking steps this year to compel institutions to pay greater heed to climate risks, and demanding greater transparency. The ECB plans to begin examining the management of climate and environmental risks more thoroughly from next year and intends to make climate risks a focal point of its next stress test in 2022. The regulatory requirements are growing more stringent at the same time as a result of the EU taxonomy for sustainable activities, disclosure obligations associated with it and the consideration of ESG aspects in financial advisory activities. These developments involve enormous costs and bureaucratic outlay for financial institutions. The sector is well prepared nevertheless. The banks have been factoring environmental aspects into the credit check process for a long time and a sustainable focus has already come to be regarded as an important success factor, so voluntary publications are now common practice. It is generally accepted that climate risks are financial risks, hence tracking them systematically not only benefits the environment but also helps strengthen the creditworthiness and performance of the banks.

Why does sustainability remain so important for financial centres?

The challenges of the pandemic have pushed the subject of sustainability out of the limelight to a certain extent. The response to COVID-19, though, demonstrates that established patterns of behaviour can be modified given political incentives and broad public support. Sustainable finance has an essential role to play in the transition to the global economic system of the future and is thus also becoming a significant competitive factor for international financial centres. The transformation of the energy sector and the associated corporate transformation process cannot succeed without a financial sector committed to the same goals. Financial centres can make a difference here, individually and through their interactions at a global level, because of the concentration of key players within their bounds. Germany as a financial centre has already made strong moves in a number of areas in this connection and ranks among the leaders for sustainable finance according to a recent study by a UN initiative. This is of course good news for Frankfurt, the heart of the German financial system, which finds itself well placed for continued strong progress on its path to sustainability.

What should we expect if the COVID-19 pandemic ends up lasting longer than currently anticipated?

We are hoping at the moment for a further easing of restrictions before the summer is out. If this turns out to be too optimistic due to the infection rate trend or delays in the vaccination programme, re-opening and economic recovery will still happen, just at a later date. The longer we have to wait for the upturn, the lower economic growth will be in 2021 and, in consequence, the higher it will be in 2022. That is not to trivialise the effects of any delay, I must point out: even an extra couple of months of social distancing would significantly increase the economic damage caused by the pandemic, and on top of that we also have to consider the disruption to education and training for young people, rising unemployment and company insolvencies and an ever-greater drain on the public purse. That is why it is so very important that we reduce the number of new infections now and throw everything into the vaccination effort.

Dr Gertrud R. Traud

Dr Gertrud R. Traud has been Helaba's Chief Economist for 16 years and one of the very few woman to hold such a post in Germany. Dr Traud and her research team produce numerous publications every year including the Markets and Trends report, which presents the annual economic and capital market outlook based on a variety of global economic scenarios developed for the purpose. Published every autumn, Markets and Trends always has a subtitle appropriate to the report's predictions.  The forecasts thus far have proven to be extremely accurate.


We regard it as our cor­por­ate duty to take re­sponsi­bility for the pre­serva­tion of our natural en­viron­ment, the wel­fare of our society and the lives of cur­rent and future gen­era­tions.

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