The misleading promises of green finance

How to finance the energy transition ? While the IPCC constantly reminds us of its imperative nature, it is up to parliamentarians to address the subject during negotiations on the 2022 Finance Bill, on the agenda for this month of October. The matter is not small since, according to the Institute for Climate Economics (I4CE), between 10 and 40 billion euros are missing each year to finance the French carbon exit strategy. A most surprising finding when you keep hearing that finance is developing green » Where sustainable »whose objective is precisely to bring capital to ecological and social projects.

On September 22, Eva Sadoun, founder of the alternative finance platform, challenged the deputies on this subject, in a petition signed by more than 15,000 people. In focus, the Sustainable and Solidarity Development Booklet (LDDS), regulated by the state and owned by 24 million French people. Despite the name of this booklet, the savings deposited in it are only directed towards ecological projects up to 10 % of the deposited amount and only 5 % towards the social and solidarity economy (SSE).

Besides this example, many products green savings » have recently burst onto the market. They seek to distinguish themselves by claiming to take into account data other than financial profitability. They are based on assessments established by private rating agencies based on environmental, social and governance criteria (ESG). Only, according to various professionals in the sector, this system sins by the absence of a common reference system and an often opaque methodology.

In these funds which claim to take into account the criteria ESG, we find a large part of them where the selection of companies is not very restrictive or even negligible. On the contrary, priority should be given to concrete indicators such as the impact on biodiversity »says Léo Garnier, CEO of Rift, an application that informs about the impact of financial products.

The green label that supplies oil tankers

An extreme example is that of funds with the label social and responsible investment » (SRI), supposed to guarantee the proper consideration of the criteria ESG. With 546 billion euros placed in 2020 against 417 billion at the end of 2018, it is the first green label » of the country and the most fashionable.

But according to theNGO Reclaim Finance, 94 % of the funds SRI » feed companies with highly questionable environmental and social practices ». There are even gas and oil majors, their good mark ESG » explained by the small part of their activity that they dedicate to renewable energies. Last March, the Ministry of Finance, at the initiative of this label in 2016, itself announced an upcoming reform to make it more demanding.

Other labels on the market are unanimously recognized as more efficient. This is the case, for example, with Greenfin, which excludes fossil fuel and nuclear players, or Finansol, the label for funds solidarity savings »where the money is redirected to actors whose social and environmental utility is recognized by an independent committee from civil society.

Proponents of green finance see this new market for labeled funds as the first step towards self-regulation in the world of finance. Today, responsible products exist. Even the label SRIyet criticized, has real potential if we continue to lobby for players to tighten the rules and be more transparent »believes Olivia Blanchard, president of the association of Responsible Finance Actors.

For her, the challenge now is to raise awareness among French people of the fundamental role they have to play and better communicate across the entire sector ». As proof of this, she points to the conclusions of a recent survey conducted by Ifop: six out of ten respondents attach importance to the environmental and social impacts of their investments, but only 7 % of respondents have been advised of such investments by their bank.

We have to stop believing that this is how we will finance the transition. »

There is an alternative offersays Paul Schreiber of Reclaim Finance. It responds to a request from a few customers, but we have to stop believing that this is how we will finance the transition. » Despite their growth, the funds labeled by Greenfin and Finansol only accumulate 40 billion euros. Insignificant figures compared to the total amount of French savings, which exceeded 6,000 billion euros last July. If we want to finance the transition, the only solution is to massively redirect the existing financial flows which today go towards fossil fuels, not to create new ones which are greener. »sums up Paul Schreiber.

To meet this ambition, the world of finance is promoting another mechanism, the green bonds », whose market is booming. This consists of a company or a State going to the financial markets to issue debt. Here, unlike traditional bonds, the debt is conditional on the financing of an ecological and social project.

The myth of green bonds

Only, for Julien Lefournier, author with Alain Grandjean of The illusion of green financeas things stand, there is no reason to believe that green bonds can accelerate the transition: Green or not, the two bonds are the same for a company since they carry the same interest rate to pay. From a business perspective, there is no financial incentive to go green bond. »

In other words, the projects green » current ones exist only by the will of the actors who create them. Finance does not play any particular role in this, but it gives the illusion of it by adding the term “green” to the lambda bond. Further proof that, if we want to change the rules of the game, public authorities must get involved from outside the financial sphere », explains the man who has spent his entire career in this environment. To this criticism of form is added the contestation on the merits of several NGO who regret the lack of reference on what a project is green ». Today, the definition is largely left to the institution that originated it.

A “ extremely strong dependence on polluting sectors »

If the banks seem so reluctant to take the turn of the transition, it is in particular because of their extremely strong dependence on polluting sectors in which they have been investing for decades »according to Lorette Philippot, campaign manager at theNGO Friends of the Earth. A report published last June by the Rousseau Institute, of which she is co-author, concludes that this degree of dependence is now strong enough to pose a real risk of financial destabilization »in the event of too rapid a devaluation of fossil assets.

According to the report, greenwashing then appears as a way to save time in the face of an inevitable deadline ». As long as these assets exist, banks will have no interest in investing in the transitionsums up Lorette Philippot soberly. This is another unthought of current regulators and promoters of green finance. »

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