A general meeting like no other. Wednesday, May 25, from the stage of the Salle Pleyel in the 8th arrondissement of Paris where TotalEnergies was to hold its traditional high mass with the shareholders of the group, Patrick Pouyanné had a funny morning. Behind the first row, where his executive committee and the “top executives” of the company stood, rows of empty seats until the darkness. The shareholders who had to occupy them were blocked outside by 250 activists denouncing the group’s climate strategy. A multinational oil company faced with the anger of environmental activists, the conflict sounds like a classic.
In the preceding weeks, a battle of another kind, more subdued, no less interesting, took place around TotalEnergies. In mid-April, some investor shareholders in the oil group tried to put pressure on the company, announcing that they would oppose management during the vote on its climate plan for this month of May. Objective: to accelerate TotalEnergies on the path to renewable energies and to impose more transparency on the way it wants to reduce its greenhouse gas emissions. Alas, these investors, including Crédit Mutuel, OFI AM, Meeschaert Amilton AM and Sycomore AM, did not win their case. Deemed insufficient according to them, the climate plan was adopted by an immense majority by the shareholders, with 89% of the voters.
A score not Soviet but almost, which shows the extent of the path that remains to be covered for finance in the fight against global warming. Since the Paris agreements in 2015, banks, asset managers, investment funds and insurers have certainly multiplied their commitments to a shift towards a greener, carbon-free economy. In support of their promises, certain figures are eloquent. Issuance of green bonds and loans, therefore with an environmental benefit, as well as initial public offerings targeting green projects have multiplied by 100 between 2012 and 2021, to the tune of 540.6 billion according to a recent study carried out by BNP Paribas.
At COP26, financial institutions representing no less than 130,000 billion dollars under management committed to aligning their portfolios towards carbon neutrality and reducing their emissions by 50% over the next decade. And beware of those who would try to get out of the way. On Friday May 20, on the occasion of a financial conference organized by the Financial Times, an egg of the Swiss banking giant HSBC has tried the exercise. “Climate change is not a risk we need to worry about. It’s heresy!”, Stuart Kirk tried to hammer. He was ousted the next day. A deluge of signals that tend to reassure, giving the impression of a finance that has undergone its transformation.
Illusion of green finance
With twenty-five years spent in the sector, Julien Lefournier is a privileged spectator of this transformation. Contrary to the facade speech displayed by his former colleagues, he draws up a severe observation, which he laid down in a book entitled The Illusion of Green Finance. “The financiers have not given up on their business model. For 1 euro put into the green machine, we put another 2 or even 3 into brown assets. The transition is not just about investing in wind turbines , it is also to close the tap of coal, gas, oil”, he tackles. The NGO Reclaim Finance, which tracks financial movements from major global banking groups, also regularly pinpoints flows going to polluting companies. In a report published recently, it estimated that, from 2016 to 2021, 4.6 trillion dollars had been allocated by the major global banks to fossil fuels. The IPCC itself regrets in its latest report “a persistent misallocation of global capital”. Financial flows towards sustainable activities, which are absolutely necessary, would be three to six times lower than the level necessary by 2030 to limit global warming to less than 2 degrees.
In the face of criticism, the line of defense of part of finance is understood: “French banks must finance the entire economy, which today is carbon-intensive”, pointed out the French Banking Federation in reaction to the report published by Reclaim Finance last March. That is. The discrepancy between the climate objectives declaimed with great communication and the facts raises questions. Bankers and managers know it though. Each year, the questions will become more pressing, the recriminations stronger. Should we finance the exploration-production projects of TotalEnergies, Tilenga in Uganda and its 400 well drillings, for example, when the International Energy Agency itself says that we should no longer develop the slightest new project oil or gas to stay in line with the Paris agreements? Like the nine banks, including BNP Paribas, Société Générale and Crédit Agricole, which have just granted a loan of 8 billion euros to TotalEnergies, not specifically for this project but which the group will be able to use for this purpose , a large part of finance still thinks yes. Rare dissonant voice in this concert, the Postal Bank decided in 2021 that it intended to exclude oil and gas from its investments by 2030.
The question no doubt occupies the minds of other leaders. But short-termism still dominates: “We need oil. Even if the French banks withdraw tomorrow from TotalEnergies, Patrick Pouyanné will have no problem getting his projects financed by other players. It’s an extremely profitable. That’s how it is”, cowardly, almost disillusioned, a consultant in the world of finance. In addition to bankers, many asset managers also refuse to exclude groups with a large carbon footprint from their portfolios. Those who claim to be the most committed to the climate plan argue that they manage to transform companies from within. “Things are moving. Business leaders pay attention to their small shareholders, we manage to have contradictory but constructive discussions at a very high level now”, swears Guillaume Lasserre, deputy director of management for Banque Postale AM.
Progress to be made
A policy of small steps that will not save the climate, for Julien Lefournier: “It’s a structural problem. When you invest in something sustainable, you have to pay an additional cost, which corresponds to taking into account the preservation natural capital, which was previously considered a free resource. It is therefore structurally less profitable for a financial player than a traditional asset. However, the fiduciary responsibility of the latter is to maximize the risk-adjusted return for the investor It’s like giving a premium to vice,” he explains. Christophe Thibierge, professor of finance at ESCP Europe, does not believe in the idea of monolithic finance on the question: “This world is torn between the actors who maximize and those who optimize. The former operate according to a model classic, the risk-return pair, the latter based on a three-input model that includes risk, return and the sustainability of activities. For the moment, these are not numerous enough. The lack of interventionism by giants such as BlackRock – which, from the height of its 10,000 billion assets under management, has just announced that it will henceforth support the climate resolutions of activist investors much less -, or Amundi in France, does not yet tip the scales.
But then, how to accelerate? “We should not expect much from the invisible hand of Adam Smith; the ability of financial markets to self-regulate based on an externality does not work. Constraint is necessary”, confides the director general of a big shop in the Parisian square. Regulation, transparency, standardization…, for several years now, France or even Europe have been trying to advance the pawns to direct more money towards the transition or to hunt down greenwashing. An example of this is the taxonomy that should define which activities are green and which are not. Other texts, such as article 29 of the energy-climate law in France or MiFID 2 in Europe, “require investors to produce indicators showing that they align their portfolio with the Paris agreements, and will soon force them to take into account the preferences of their clients in terms of sustainable investment”, says Luisa Florez, director of research in responsible finance at OFI AM. Necessary but not sufficient, for another consultant: “The introduction of taxation increasing the cost of investment on brown assets will be essential. When the State wants to reduce tobacco consumption, it manages to increase its cost,” he said.
Another link in the chain could tip the scales: “We have to stop mythologizing finance. Bankers are people in gray suits who manage other people’s money,” explains Christophe Thibierge. Many are convinced that it is ultimately the saver who holds the key. He who votes, with his portfolio and his investment choices. Not easy to grasp in France, where the lack of financial culture has always and de facto left considerable leeway to intermediaries and advisers. Lost in the maze of green products offered by banking or wealth advisors, between green investment funds, ESG criteria, SRI or Greenfin labels, the individual does not really know where to turn.
Finally, it is difficult for him to ensure that his savings go towards truly sustainable products. Just a few days ago, Elon Musk, the famous CEO of Tesla, was enraged by Standard & Poors’ decision to eject the electric car manufacturer from its ESG ranking, even as the world’s largest oil company, ExxonMobil, still appeared. “ESG is a scam,” he fumed on Twitter.
A “Yuka” of finance
The debate on the credibility of labels or the methodology of ratings is also present on this side of the Atlantic. A few weeks ago, the boss of Mirova, a subsidiary of Natixis, judged that the SRI (Socially Responsible Investment) label, considered the Rolls Royce of sustainable investment in France, was in “a state of clinical death”. “By seeking quantitative success with funds, it has lost all its legitimacy”, remarks Julien Lefournier. “There is an urgent need to clean up this jungle of labels and ratings,” said a consultant quoted above. Vincent Auriac, founder of the sustainable finance organization Axylia, agrees: “Even if the saver is committed to the climate, the French have no idea of the climate impact of what is placed on a booklet A and have little chance of obtaining the information. There are no inventories, no transparency. We would need a Yuka, or a Nutri-score on each financial product”, explains this financier who has created his own metric , the Carbon Score.
He is not the only one. Managing Director of the start-up Rift, Léo Garnier has created an application allowing its user to know as much as possible what finances the money he deposits on his savings account, his life insurance, his savings funds. And therefore to know its environmental footprint. “We are able to tell a user that the money in his account has financed activities that generate so many CO2 emissions, or how many square meters of natural habitat they have destroyed, if we are talking about biodiversity”, explains the ‘interested.
The observation, then the action. Example: prior to the general meeting of TotalEnergies, all users with a portfolio exposed to the oil group were alerted to the impacts of the EACOP project. “We encouraged them to contact their manager and push him to vote against Total’s climate plan. No less than 7,000 emails were sent in less than 20 days.” A less visible manipulation than that of the activists in front of the Salle Pleyel, but, who knows, perhaps more decisive in the long term.