Paris, I love you! When finance embraces climate goals

By Stéphane VOISIN,
Julie RAYNAUD
and Peter TANKOV
Institut Louis Bachelier

A key factor for the success of the Paris Agreement and its application is ‟alignment”, a concept referring to the methods that a growing number of financial institutions use to evaluate the compatibility of their portfolios with the Agreement’s objectives.

Intended for informing investors and individuals about the ‟climate performance” of their investments and savings, these methods should be handled prudently given the many variants of the underlying hypotheses and a cumulation of uncertainty (which can affect calculations and results, as shown in the ILB Alignment Cookbook).

These not very comparable methods can be used for the purpose of communications (about the coherence of a managerial strategy that makes a climate commitment or about a portfolio’s ‟implicit temperature”), but they are not fit as indicators for managing climate risks.

The accompanying claims about a positive impact are subject to discussion, even if the dynamics of ‟alignment” on a large scale may lead to decarbonizing the real economy. This is precisely the objective assigned to it in the Paris Agreement.

RESPONSABILITÉ & ENVIRONNEMENT – APRIL 2021 – N°102 – © Annales des Mines

 

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