How to Make Finance More Sustainable

Christian Thimann calls for shift of financial actors’ strategies

To improve the contribution of the financial sector to sustainable growth the key actors like insurance companies, asset managers, stock exchanges and credit rating agencies should adopt a more long term oriented strategy, Christian Thimann claimed at a SAFE Policy Lecture on 6 July. Thimann is Chairman of the EU High-level Expert Group on Sustainable Finance and the Group of Regulation, Sustainability and Insurance Foresight at AXA Group. The EU High-Level Expert Group is setting out a comprehensive program of reforms on re-engineering the financial sector to become more sustainable and foster sustainable investments.

According to Thimann short time horizons in financial markets make it difficult to invest in projects which take environmental, social and governance aspects into special account. However, a change of perspective would be necessary to finance long-term needs such as job creation, innovation and infrastructure, and accelerate the shift to a low carbon and resource-efficient economy. Moreover, accounting principles were based on mark-to-market values, which created a lot of volatility and made it difficult for public companies to implement sustainable strategies. “We need a decompression of time horizon and a wider perspective of risks”, Thimann stated and advocated an EU-wide classification system on sustainable investments.

He doubts that introducing subsidies would be the right way to mobilize capital for sustainable projects. Subsidies as well as a relaxation of capital requirements for banks and insurers on sustainable investments could have a negative impact on the financial system. According to Thimann, the assessment and management of long-term material risks and intangible value creation factors for ESG investment projects has to be improved instead. Current valuation methods for example possibly overstated the economic risk of such projects, Thimann stated.