Sustainable, green, solidarity or even ethical finance, ESG funds and extra-financial rating, SRI funds… For the uninitiated or the saver, this little lexicon of so-called “responsible” finance can be like a labyrinth impossible to survey. And yet… More than a fad, impact finance has become a structuring element of the global and French economy.
In Europe, assets under management for socially responsible investment have increased from 150 billion euros ten years ago to nearly 2,000 billion in 2021. That is 24% of the market (according to Quantalys). We can only rejoice in this but ultimately, for the saver, it is difficult to understand what is hidden behind these terms. While “greenwashing” is on everyone’s lips, beyond labels and acronyms (ESG, SRI, GreenFin; Finansol, Luxflag…), what exactly does impact finance cover? To understand, we have to go back to our economics lessons and the “circular flow model”: economic agents provide their labor and their capital, and in return, they receive remuneration, a salary, or dividends. This income received, they spend it on goods and services. Resources, like money, rotate in a circular fashion. Here, in two lines, is the simplified definition of our market economy.
The biosphere, largely forgotten by finance
However, it omits one fundamental thing. The economy depends entirely on the stability of our biosphere. Over the past 12,000 years, conditions on our planet have been incredibly benevolent to our development. We have had a stable climate, abundant water, clean air, rich biodiversity and a protective ozone layer. Then we discovered fossil fuels that powered the machines we invented. We have multiplied our ability to extract natural resources and turn them into material goods that we use and then throw away. The industrial revolution of the last 150 years has undeniably improved our quality of life, proof of this is our life expectancy, which has doubled on average over the period.
But along the way, we lost our connection with nature and the living. By demonstrating a collective lack of discernment, we “humans” have become the primary force for change on Earth, overriding geophysical forces. Despite the warnings of the Intergovernmental Panel on Climate Change (IPCC) since 1990, we like to continue to think that a technology from the fantastic world of unicorns will solve the problem of global warming with the wave of a magic wand. . Contrary to popular belief, the market economy as we know it does not put the planet at risk. It will just change state, but it is not certain that this will be compatible with human life.
An economy rooted in reality
Let’s stay pragmatic. One cannot reasonably move away from the market economy. It has enabled development and an increase in the standard of living of several billion people. But let’s make sure it’s not above ground, and let’s reattach it to reality. Impact finance is precisely about getting back to the raison d’être of the economy. It pushes us to take up the challenge of bringing billions of people above a minimum and decent social threshold: as a reminder, 1 in 8 people in the world do not have enough to eat, 1 in 5 do not have access with electricity, 1 out of 3 with drinking water. This can only be done by using the limited resources of our planet as we demand it far beyond what it can provide.
Impact finance is changing our idea of progress, which for nearly 100 years has only been measured through economic growth. Through these new “impact glasses”, finance sees our progress as the search for a balance between, on the one hand, the use of the resources necessary to satisfy our basic needs, and, on the other, the protection of our biosphere. and respecting planetary boundaries. Restoring this balance would be the achievement of the century, but it is above all the responsibility of finance to embrace the impact in order to institutionalize it, thus making it the new norm.