In this post we publish the replies from Dr. Mattia Guerini (Fondation Nationale des Sciences Politiques), member of the DOLFINS Consortium. The future of Europe depends on Sustainable Finance. Citizens have the unique opportunity to contribute to the debate at an early stage, well before the policy proposal is issued. The FET-funded project DOLFINS is supporting this effort. The contributions of DOLFINS members are published in a series of blog posts on the simpolproject platform and on our twitter profile Follow @simpolproject.
Question 1. From your constituency’s point of view, what is the most important issue that needs to be addressed to move towards sustainable finance? (sustainable finance being understood as improving the contribution of finance to long-term sustainable and inclusive growth, as well as strengthening financial stability by considering material environmental, social and governance factors).
Reply: For finance to become sustainable the most important issue to be addressed concerns the allocation of investments: less resources should be channelled toward the funding of short-term projects with large monetary returns but without any social positive externality; the largest amount of resources should instead be directed toward the funding of long-term projects, maybe with lower monetary returns, but with positive spillovers for the society and the environment.
Question 3. What considerations should the EU keep in mind when establishing a European standard and label for green bonds and other sustainable assets? How can the EU ensure high-quality standards and labels that avoid misuse/green-washing?
Reply: The main considerations that the EU shall keep in mind when establishing standards and labels for green bonds is that, together with these standards, also an independent authority body (with high reputation and expertise) shall be created in order to evaluate the compliance and the possible misuses.
Question 5. It is frequently stated that the inherent short-termism in finance, especially financial markets, represents a distraction from, or even obstacle to, a long-term orientation in economic decision-making, including investments that are essential for sustainability. Do you agree with this statement?
Reply: I completely agree, as stated in the reply to Q.1.
Question 5.1. If you agree with this statement, which sectors of the economy and financial system are particularly affected by the ’mismatch of time horizons’? What are possible measures to resolve or attenuate this conflict?
Reply: Possibly all the sectors where competition is strong. In these sectors indeed shares buybacks and large mergers and acquisitions procedures might be allowed from the antitrust authority because they do not generate market biases and do not harm the competition of the sector. However, these operations are typically aimed only at increasing share prices without generating long-term investments committed to useful and society improving projects.
Question 8. What are some of the most effective ways to encourage credit rating agencies to take into consideration ESG factors and/or long-term risk factors? Please choose 1 option from the list below.
- Create a European credit rating agency designed to track long-term sustainability risks
- Require all credit rating agencies to disclose whether and how they consider TCFD-related information in their credit ratings
- Require all credit rating agencies to include ESG factors as part of their rating
- All of the above
Reply: All of the above. Introducing quantitative estimation of the sustainability of institutions, or, conversely, of the systemic risk to sustainability, e.g. a Value-at-Risk for sustainability.
Question 9. What would be the best way to involve banks more strongly on sustainability, particularly through long-term lending and project finance?
Reply: Command and control policies would be the most effective: impose that a minimal percentage of banks total lending is directed toward projects which have been labelled and certified as “sustainable” by an independent body with sufficient technical expertise and with high reputation (e.g. an European Credit Rating agency).
The SIMPOL Project is currently funded by the H2020 European grant DOLFINS (no. 640772) in the Global Systems Science area of the Future Emerging Technologies program.