"Disinvestment is an illusion"

“Disinvestment is an illusion”



Can the financial system as it exists today meet the challenges of ecological transition?

From a systemic point of view, finance cannot be green. We operate in magical thinking mode by tackling the finance of desires, but the reality of the financial markets today is not that at all: high-frequency trading represents around 60% of the volume on the equity markets. There is finance as we would like it to be and finance as it is. If the green finance, it is the financing of green assets, then there is a green finance. But can finance be a catalyst, an accelerator of the transition? No. There is no incentive to do well from the market. Because going from business as usual to a carbon-free world has a cost that is not assumed by the market, which is in a logic of maximizing the risk-adjusted return.

What about actions taken by financial players who have developed sustainable investment strategies, such as the exclusion of polluting sectors? Can they move the market in the right direction?

The question is systemic: as a whole, have we made progress with green funds, knowing that the market continues to invest en masse in the shares of polluting companies? That shadow banking has taken on incredible proportions? Divestment is an illusion. Green funds too. We see this with the SRI label, which is currently being overhauled. There is a double-bind type situation here: the more demanding one is on the selection of investments, the more one reduces one’s expectation of risk-adjusted return compared to those who do not have these additional constraints – here, unlabeled funds . The paradox is resolved in favor of preserving the expected return, so that the number of eligible funds is maximized, and the apparent greening of finance.

Should finance take its share of this additional cost of the transition?

Yes, finance should play its part in this war effort – and it is indeed a war. Today, a company that does not produce “properly” is favored by the system, thanks to lower production and investment costs. Finance that declares itself green should assume part of the additional cost incurred by good students, which is now borne by consumers and public funding, that is to say the taxpayer.

What can be done so that this greening is not only apparent?

To make the system evolve, you have to change the rules of the game for everyone: that’s called regulations. It still needs to be effective. SFDR, CSRD, the green taxonomy of the European Union are part of a mythology of neo-liberal thought. We demand information, as if that were enough to change the world. Information is of course necessary, but not sufficient. We must mobilize our economic, monetary and fiscal policies, and constrain the market. While we’re talking, the atmosphere fills with greenhouse gases.

Find all of Investir Durable #13, the sustainable finance magazine.

Find the Investir Durable #13 file online.

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