The research object of Work Package 7 is the relationship between finance and environmental sustainability.

In the last year, the FESSUD deliverables have focused mainly on the policy implications of their research. To this end, they dealt in particular with the following three main topics:

  1. The functioning of the European Emission Trading System (EU ETS) that has been the cornerstone of the EU climate policy in recent years;
  2. The role of financial instruments in the greening of the economy;
  3. The financialisation of built environments.

In Working Paper No 85 Borghesi and Montini examine the emerging role of the EU-ETS as prototype for the increasing number of countries that are introducing tradable permits schemes. Their analysis discusses the differences and similarities of the EU ETS with respect to the other main ETSs in order to identify the desirable features that future ETSs should have. A possible way to increase the effectiveness of the existing domestic or regional regimes is linking the existing ETS systems within a more general framework. In Working Paper No 86 Borghesi and Montini explore the options for linking the existing ETS systems, taking into account their expected consequences and their feasibility.

In Working Paper No 195 Gabbi explores the impact on sustainability of energy derivative contracts. This investigation focuses on the shortcomings of the current regulation principles, as well as the impact of commoditisation and financialisation of energy in terms of price volatility correlations. In the following deliverable D7.13, Gabbi suggests a re-regulatory framework aimed at stabilizing the markets.

Gouldson, Millward-Hopkins, and Kerr provide a formal academic evaluation of an innovative financing mechanism for building energy efficiency programmes: the revolving funds that capture and reinvest a share of the savings from low carbon investment. They find that an extensive domestic sector retrofit scheme based on revolving funds could be substantially cost-neutral and its up-front investment costs and risks could significantly subside. The research also finds that a public or civic scheme could have substantially greater impacts than a private scheme ( Gouldson, A., Kerr, N., Millward-Hopkins, J., Freeman, M., Topi, C., Sullivan, R.: Innovative financing models for low carbon transitions, 2016; Gouldson, A., Millward-Hopkins, J., Kerr, N.: The Co-Evolution of Financial Instruments and Institutions and Low Carbon Transitions, 2016).

In Working Paper No 91 Hornborg explores the case for national authorities’ issuance of a complementary currency to purchase locally produced goods and services or to provide basic income in order to promote equality, sustainability, and protection from financial speculation.

In Working Paper No 114 Clark, Larsen, and Hansen critically review the literature on financialisation of built environments, while Topal, Çelik and Yalman (Working Paper No 116) and Hansen, Larsen, Grydehøj and Clark (Working Paper No 115) provide empirical evidence on problems raised by finance capital’s constant seeking of rent in built environment investment comparing three case-studies: Ankara, Stockholm, and Copenhagen. Crucial policy implication of this research is that built environments need to anchor in the sphere of urban commons, where use-value driven investment decisions can be anchored to a thorough democratic process. The authors suggest bringing urban land, built environments and financial institutions financing production of built environments under stronger public control and regulation.

The synthesis report on Work Package 7 by Vercelli, Clark, and Gouldson (Working Paper No 166) illustrates the main methodological and substantive issues discussed during the five years of research activity. The main thesis is that, although the process of financialisation has increasingly undermined the sustainability of the process of development, the role of finance is nonetheless crucial to make possible and implement the huge investment necessary to converge towards a trajectory of sustainable development.

More specifically, in a recent Policy brief, Gabbi, Ticci and Vercelli suggest public banks should have an active role in stimulating private sustainable investment. They formulate a proposal for building a European network, monitored by a central entity, of private and public banks compliant with principles of sustainable banking (FESSUD Policy brief No 10, A European Union Sustainable Banking Network). This system, called EU Sustainable Banking Network (EU SBN), relies on:

  1. Green certification of financial institutions;
  2. Sustainability rating of projects, and
  3. Systematic monitoring.

Workshop “Finance, Environment & Sustainability”

11 November 2016, Siena

The main findings of WP7 have been presented, discussed, and disseminated during the recent workshop “Finance, Environment & Sustainability” organised by the University of Siena. This workshop hosted distinguished non-FESSUD researchers to enrich the discussion on the results of WP7 from a plurality of points of view, and  the “Goodwin lecture on sustainability”, a periodical lecture given by well-known and thought-provoking invited speakers. This year, Michael Grubb of the University College of London discussed how we need to resort to three main decision-making domains (standards and engagement, markets and pricing, strategic investment), based on different theoretical foundations, to face the challenge of low carbon energy transition. In particular, the speaker brilliantly applied this approach to the policy dilemmas raised by the change of leadership in countries of crucial importance in the light of the recent Marrakesh Climate Change Conference.

Many speakers discussed the role of constructive synergies between private and public investment and the potential role of private finance and private investors for sustainability. In particular, Ameli (see PPT) presented results from direct interviews on institutional investors’ investment decision in low-carbon investments suggesting policy actions for clear and stable policy framework, data disclosure and a greater engagement of development financial institutions.  Taschini (see PPT) assessed the shortcomings and policy implications of the EU ETS. The issue of information disclosure on environmental, social, and governance (ESG) was further expanded by Ossen (see PPT), while Consolandi explored the contribution of non-financial corporations to sustainability in an era of financialisation. During the final round table Di Castelnuovo (see PPT) explained why financial institutions should care about climate change. Many speakers (in particular Sawyer in his introduction, Ferri in his presentation, Tonveronachi in the round table) maintained that the financial system needs to be substantially reformed to play a crucial role of support to sustainable development.

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