T. Philipponnat (Finance Watch): “Sustainable finance must be regulated at European level”
Thierry Philipponnat, director of research and advocacy at Finance Watch, a member of sustainable finance and climate commissions at ACPR and AMF, assesses the importance of emphasizing a European sustainable finance framework.
Leaders League: Hopes for a more sustainable form of finance have grown in the wake of the Covid 19 crisis. Where are we at today exactly?
Thierry Philipponnat: Today, the subject of sustainable finance has become normalized. It has become evident that finance must contribute to the development of a more sustainable world. However, we have, once again, only gone part of the way, stopping at acknowledgement. We must strive from now on to work towards the actual implementation and development of sustainable finance.
The crisis that we are living through has truly hammered home this realization. We now have the chance to favor a sustainable economy. If we do not seize this opportunity, it will be a waste of the money invested in stimulus packages and economic support plans.
The past few years have seen norms multiply framing the subject of sustainable finance. Do we not risk losing something in legibility?
The proliferation of norms, is, above all else, positive: it reflects the dynamism of sustainable finance. The big difficulty will be to match what is happening in the national plans with European initiatives. Sustainable finance must be regulated at European level. This will allow us to speak a common language across the European Union, in tandem with the free circulation of capital.
"It is desirable that a European label for financial sustainable products be developed"
Every initiative that is not established in the prolongation of what is business at the European level is lost energy, bears an added complexity and is of little use those in the sustainable finance community.
Do you have examples that illustrate the excesses of normative proliferation?
The subject of the so-called green bonds and of transition bonds is a part of this. To better understand what’s going on, it is necessary to study the fine details of taxonomy. It is a common thread in all green-finance subjects in Europe and has a vocation to identify activities considered sustainable. In taxonomy, three definitions of the word “sustainable” are given: low carbon activities, those which allow other activities to eventually become low carbon, enabling activities, and those in transition. These last ones, today, are activities that can no longer be considered sustainable, but instead must do the necessary to become so. This qualification is important because we hope that our economies move towards a more sustainable model, and it is not sufficient to merely come up with activities that do not emit CO2, you also need to encourage those that do emit CO2 to evolve. The relative recommendations vis-à-vis green bonds refer directly to the established taxonomy by the European Union that takes into consideration transition activities. Therefore, transition obligations no longer apply. This example, among others, demonstrates the danger of normative proliferation.
The amount of national sustainable finance labels created for investment funds have also multiplied. Are they worth more than the paper they are written on?
A number of countries have created their own labels, which proves, yet again, the dynamism that surrounds the subject, but does not really advance the cause of European standardization. It is desirable that a European label for financial sustainable products be developed. It is true that these so-called sustainable products will soon need to indicate their percentage of conformity with the taxonomy in question, but this factor risks causing confusion, notably for individual investors. With a well put together, intelligent European label, the national labels will soon fall out of use - the European machine is up and running.
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