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Finance on the front line of transition

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What role finance has to play in the light of the energy and environmental transition? Which schemes would further direct financial flows towards eco-solutions? Why measures of environmental impact are of paramount importance today? MD of WWF France Pascal Canfin reacts to these questions in his interview in our Responsible Way #7.

In many areas, NGOs are playing increasingly important roles, spurring change and acting as watchdogs. What mission has the WWF set itself in relation to finance?

WWF

The WWF’s objective is to transform the market’s rules of play and to make them environmentally sustainable – and this includes finance. We are convinced that finance is an extremely powerful driver of change. In this respect, I suggest you read the works of Luc Boltanski[1] on the transformation of capitalism: he explains that the power of an economic player is proportional to his or her “liquidity”, in effect the ability to commit and disengage, and to invest elsewhere. Market finance is extremely liquid and therefore very powerful. It is one of WWF’s main priority targets.

Finance is an extremely powerful driver of change

Furthermore, we are lucky to be working in France – in a particularly favourable environment, driven by public sector initiatives such as article 173[2] or the TEEC Label, and by a dense ecosystem of engaged players, as the launch of Finance for Tomorrow, of which the WWF is a partner, demonstrates. Another example is France’s issuance of 9 billion euros’ worth of sovereign green bonds in 2017, which clearly places the country as a leader in this field. This step paves the way to a new paradigm. Fortunately, these initiatives are not limited to France; the European Commission launched the High-Level Expert Group on Sustainable Finance with a view to promoting sustainable finance in Europe; the group is expected to deliver its final report in 2017.

As a qualified specialist, you are also a member of the European Commission’s High-Level Expert Group on Sustainable Finance. What impact could this work have?

The taskforce has already had an impact, as the initial recommendations published in July 2017 provided input for the legislative proposals of the European Commission, with a view to integrating environment, climate and sustainability-related risks into the mandates of the 3 European agencies[3] supervising banks, insurance companies and capital markets. Furthermore, via the European Taskforce on Climate-related Financial Disclosures or TCFD[4], the idea of a European article 173 has emerged. Two guiding principles govern this progress:

  • Measuring: this is the first fundamental stage; to be able to manage climate risk, it first needs to be quantified and monitored;
  • Aligning: this is about gradually facilitating the flow of capital towards solutions, and no longer towards investments that generate negative externalities.
Sustainable finance

Initiatives for aligning development with 2°C scenarios are growing. 320 large companies throughout the world have joined the Science-Based Targets initiative, where they work on the implications of a 2 degree-world for their businesses. Sometimes, the WWF provides direct support to help these companies set their own 2°C compatible map. At government level, the adoption of carbon- neutral targets for 2045 and 2050 respectively by Sweden and France, is a powerful example of alignment with the key targets set during the Paris Agreement.

To conclude on the role of the HLEG, other proposals were shared with the Commission and could lead to results as early as December 12th, during the climate summit organised in Paris by the French President.

June 30th 2017 was the deadline for the publication of reports in compliance with article 173 of the French law governing Energy Transition for Green Growth. These reports are particularly heterogeneous and not all that readable. What is your initial assessment of article 173?

This year, the WWF chose to examine the answers provided by insurance companies. I suggest you take a look at the article we published on this matter at the end of November 2017. To summarise, while some insurance companies have made progress in aligning with the 2°C scenario, which we recognise as a major headway in the field of reporting, it will be important to raise awareness and outreach to improve readability for citizens.

This edition of the Responsible Way is dedicated to corporate environmental impact and how it is measured by investors. What role can these impact metrics have?

They are essential. As far as market finance is concerned, for instance, it would be interesting to know which areas of the economy are financed by stock market indices: when I buy an investment vehicle aligned with the CAC 40 index, am I buying a world with 2, 3 or 4 degrees of global warming? Today, transparent information on this matter is not available. I believe that if we were to ask investors explicitly whether they wanted to invest their savings in a +2° C or a +5° C world, most would opt for the +2° C option; this would lead to a major reallocation of capital and therefore a shift in access to capital. As long as index-linked or “passive investment” remains impermeable to environmental impact criteria, it will not, by its very nature, be able to contribute to shifting financial flows.

As long as index-linked or “passive investment” remains impermeable to environmental impact criteria, it will not, by its very nature, be able to contribute to shifting financial flows.

Furthermore, it is important to remember that the economy is not just about listed companies! Many low carbon intensive activities, such as education, healthcare and home care & services fall into the non-business, unlisted category. Therefore, the listed universe is carbon intensive and particularly misaligned with sustainability targets. Hence the importance of getting things moving along quickly, as we are in a race against time as far as climate-change is concerned.

What key developments have you witnessed since your appointment as head of WWF France in January 2016?

Other than the trends discussed above, what strikes me particularly is the change in our everyday behaviour. Last October, we published an Ifop survey in partnership with Le Parisien[5] on French consumer habits. To the question “Do you, personally, purchase organic food products?” the answer given by the French population has changed radically over the past 20 years. While 65% had answered “rarely or never” to the question back then, they are now only 38%. The vast majority of the population has shifted in favour of organic food, with 62% answering “often or from time to time”.

We have shared this encouraging observation with the companies we work with and their message is clear: the change of paradigm towards healthier and more eco-friendly food is on the right path, and is gaining momentum!
Note also that these shifts are at work in many other areas, such as mobility or energy, and are ushering in a new era.

Ifop Survey

Pascal Canfin

Former Deputy Minister in charge of Development, Pascal Canfin is the Managing Director of WWF France, one of the world’s leading wildlife conservation organisations. He is also a member of the “High Level Expert Group on Sustainable Finance”, working with the European Commission. A graduate in Political Science and from the University of Newcastle, Pascal Canfin first served as a journalist for Alternatives Economiques, where he specialised in corporate social responsibility. He was later elected as a member of the European Parliament, where between June 2009 and May 2012, and then between May and July 2014, he negotiated draft legislation on financial reform. In May 2012, Pascal Canfin was appointed Deputy Minister for Development in Jean-Marc Ayrault’s government. In this role, he intended to “make sustainable development an imperative for the country’s development policy”. He spurred change within the Agence Française de Développement’s project funding policies and launched the first draft policy and planning bill on development and international solidarity. During the preparations for the COP 21 summit, Pascal Canfin served as main climate advisor for the World Resources Institute (WRI) and co-chaired the Commission for innovative pro-climate funding, set up by the French President.

Discover the full SRI Way #7 here

This publication is not intended to be an offer or solicitation for the purchase or sale of any financial instrument whatsoever. References to specific securities and issuers are for the purpose of illustration only and should not be construed as a recommendation to buy or sell these values. Communication promotional in nature. This communication has not been prepared in accordance with regulations to promote the independence of financial analysis. SYCOMORE Asset Management or management companies involved with the preparation of this document are not subject to the ban on conducting transactions on the instruments mentioned by the publication of this communication.

[1] French sociologist born in 1940, Luc Boltanski published works on the transformation of capitalism: Le nouvel esprit du capitalisme, co-written with Ève Chiapello in 1999 and Enrichissement, a criticism of merchandise, with Arnaud Esquerre in 2017.

[2] Act on Energy Transition for Green Growth, voted on August 17th 2015 and came into force in late 2015.

[3] The European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Market Authority.

[4] Task Force on Climate-related Financial Disclosures.

[5] Cf. link: http://awsassets.wwfffr.panda.org/downloads/171010_sondage_wwf_ifop_agriculture.pdf

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