Green tickets
The University of Montpellier is the first in France to offer a university degree in green finance. While the concept may sound like an oxymoron to the general public oxymoron, the financial sector could well be a key player in the a key player in the ecological transition. Explanations with Adrien Nguyen-Huu, researcher at the Centre d'économie environnementale and co-director of this unique training program.
To begin with, where does this concept of green finance come from?
It's a subject that emerged very quietly 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 by Emmanuel Macron that banks took center stage as a kind of relay for public policies.
A relay for what?
Over the past five years or so, the financial sector has become increasingly aware of climate risk issues. At the same time, there has been a growing frustration among citizens and stakeholders with regard to international and national public policies, which are judged to be unambitious or too slow. As a result, investment banks have 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's the point of banks investing in green?
Let's put aside the communication work on brand image, which obviously exists. Investing in green assets allows you to diversify your portfolio. The inertia of the climate crisis is such that by the time its first manifestations appear on bank balance sheets, it will already be too late to protect against it. The insurance industry was the first to realize this, stating that a world at +4°C is uninsurable. The financial sector is not to be outdone: what are the investment sectors of the future? A priori, investors are fairly indifferent to investing in yoghurt pots or nuclear power plants. But if the markets anticipate a risk, investors can't ignore it, and will react very quickly, even if they have a reputation for being short-sighted.
What types of risk are we talking about?
Firstly, physical risks are the materialization of losses to which institutions may be exposed (rising waters, extreme events). Secondly, transition risks are linked to public policies and regulations aimed at curbing climate change, which can lead to the depreciation of assets held by banks. Imagine: you've got Total in your portfolio, and all of a sudden they're banned from exploring certain areas of the world. The value of Total is halved, and your portfolio collapses. Too rapid a transition can result in financial instability and even an economic crisis.
So, in concrete terms, how can finance help the climate?
There is already a range of financial products (shares 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, decarbonized transport... But the main challenge is to signal activities that are beneficial to the climate through taxonomy and labelling, while enabling the future economic viability of the activities concerned to be assessed. These two tasks are immense.
And the financial markets are following suit?
There is a huge amount of savings available for the transition which, for reasons of return, are still financing the carbon economy. But the extra-financial environmental and social dimensions are raising the awareness of a not inconsiderable fringe of investors, in anticipation of regulations or out of conviction. Central banks also appear to be playing an important, but as yet uncertain, role in climate action, through regulation and their impact on the banking sector.
How do you determine whether an asset is green or not? It's easy to greenwash...
Without rigorous taxonomy and international standards to define "green" business sectors, greenwashing is always suspect. This is one of the levers for public action in finance, as the European Commission recently demonstrated. Conflicting views on these "green" sectors make the task complex: the antagonistic positions of France and Germany on nuclear power are the archetypal example. Institutional investors and banks are pro-active in their green investments, but divestment from brownfields (coal, oil) is done reluctantly, as the high returns are still there.
Isn't it utopian to want to reconcile finance and ecology?
I'm not saying that 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. After all, climate change implies a change of logic that can't be achieved by finance alone, but one thing is certain: given the importance of the sector, it can't be done without them. Behind all this lies a long-term ideal: to put finance back where it belongs, in the service of society and not in the service of itself. The DU's success with students proves that the idea is gaining ground among the younger generation.
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 beginning a thesis in financial mathematics at EDF. " The crisis gave new meaning to the way I wanted to do finance, and I switched from financial mathematics to economics in the broader sense", explains the researcher. Now an expert in macro-economic modelling, he has turned his attention to environmental issues and is interested in the impact of productivity constraints, "i.e. what happens if the economy has access to less energy or energy of poorer quality". More recently, Adrien Nguyen-Huu and his colleagues at CEE-M have been working on behavioral finance. He is also a research associate at the Energy and Prosperity Chair.
*CEE-M (UM - CNRS - INRAE - Montpellier SupAgro)