The University of Montpellier is the first in France to offer a university degree in green finance. degree in green finance. While in the minds of the general public the concept may the general public, the concept may be an oxymoron, but the financial sector could well be a key player in the a key player in the ecological transition. Explanations with Adrien Nguyen-Huu, a researcher at the Montpellier Centre for Environmental Economics of Montpellier* and co-director of this unique course.

To begin with, where does this concept of green finance come from?
It's a subject that appeared very discreetly in the 2000s, around the climate negotiations, but it was really in 2015 with the
Paris agreements and then in 2017 with the One Planet Summit Emmanuel Macron's report that banks came to the forefront as a kind of relay for public policies.

A relay for what?
Over the past five years or so, the financial sector has become more aware of climate risk issues. At the same time, citizens and stakeholders in climate issues have become frustrated with international and national public policies that are deemed to be unambitious or too slow. Investment banks have therefore emerged as players capable of acting on large volumes of savings to be reallocated, while retail banks are a primary source of investment in green projects.

But what interest do banks have in investing in green?
Leaving aside the communication work on the brand image, which obviously exists. Investing in green assets allows banks to diversify their portfolio. The inertia of the climate crisis is such that by the time its first manifestations appear on banks' balance sheets, it will already be too late to protect themselves. Insurance companies were the first to realise this and to state that a world at +4°C is not insurable. The financial sector is not left out: what are the investment sectors of the future? Investors are a priori quite indifferent to investing in yoghurt pots or nuclear power plants. If the markets anticipate a risk, investors cannot ignore it and will react very quickly, even if their anticipation horizon has the reputation of being short.

What types of risk are we talking about?
Firstly, physical risks are the materialization of losses to which institutions may be exposed (rising water levels, extreme events). Secondly, transition risks are linked to public policies and regulations that attempt to slow down climate change and can lead to the depreciation of assets held by banks. Imagine: you have Total in your portfolio and suddenly they are banned from exploring certain areas of the world. The value of Total is halved and your portfolio collapses. A transition that is too rapid can therefore result in financial instability and even an economic crisis.

So in concrete terms, how can finance act in favour of the climate?
There is already a range of financial products (stocks or bonds) with a positive impact on the climate, and of course many activities that should benefit from credit facilities: resilient agriculture, insulation in buildings, decarbonised transport... But the main challenge is to signal climate-friendly activities through taxonomy and labelling, while allowing the future economic viability of the activities concerned to be assessed. These two tasks are immense.

And the financial markets follow?
There is a huge amount of savings available for the transition which, for reasons of return, still finance the carbon economy. But the extra-financial environmental and social dimensions are raising the awareness of a significant fringe of investors, in anticipation of regulations or out of conviction. Central banks also seem to have an important, but still uncertain, role in climate action, through regulation and their action on the banking sector.

How do you determine whether an asset is green or not? It is easy to greenwash...

Without a rigorous taxonomy and international standards that define "green" business sectors, greenwashing is always suspect. This is one of the levers for public action in finance, as the European Commission recently showed. Conflicting views on these 'green' sectors make the task complex: the antagonistic positions of France and Germany with regard to nuclear power are the archetype. There is also a poorly assumed asymmetry: institutional investors and banks are pro-active in their green investments, but divestment from brownfields (coal, oil) is done reluctantly, as the high return is still there.

Isn't it utopian to want to reconcile finance and ecology?
I'm not saying that the banks are going to shoot themselves in the foot out of ecological concern, but their best interests cannot be based on a purely virtual economy. Economic viability is not logically incompatible with ecological sustainability, there is a ridge to be found. After that, climate change implies a change of logic that cannot be achieved solely in finance, but one thing is certain, given the importance of the sector, it cannot be done without them. There is a long-term ideal behind all this: to put finance back in its place, i.e. at the service of society and not at the service of itself. The success of the DU with students proves to us that the idea is germinating among the younger generations.

More green than golden boy

He describes himself as a "product of the financial crisis between 2007 and 2008". At the time, Adrien Nguyen-Huu was starting a thesis in financial mathematics at EDF. " The crisis gave new meaning to the way I wanted to do finance and I moved from financial mathematics to economics in the broader sense," explains the researcher. Having become an expert in macroeconomic modelling, he turned to environmental issues and became interested in the impact of productivity constraints "i.e. what happens if the economy has access to less energy or to lower quality energy". More recently, Adrien Nguyen-Huu has been working with his colleagues at the CEE-M on behavioural finance. He is also a research associate in the Energy and Prosperity Chair.

*CEE-M (UM - CNRS - INRAE - Montpellier SupAgro)