The Future of Environmental Finance

Jean-Baptiste Vaujour is a Professor of Practice at emlyon business school where he teaches about consulting and green finance. He is an energy economist and a registered expert at the EU Commission and for the World Energy Council. He has recently published a book on the decarbonisation of the economy.   Exclusion lists have become an increasingly prominent tool for investment funds aiming to enhance their environmental performance. These lists, also known as negative screening , involve the deliberate exclusion of certain sectors, companies, or practices from an investment portfolio based on environmental, social, and governance (ESG) criteria. This method aligns investment strategies with ethical values and sustainability goals, addressing the growing demand for responsible investing. Advantages to creating exclusion lists Historically, investment funds have maintained exclusion lists based on so-called “sin stocks” such as those of companies operating in industries relate...

Jean-Baptiste Vaujour is a Professor of Practice at emlyon business school where he teaches about consulting and green finance. He is an energy economist and a registered expert at the EU Commission and for the World Energy Council. He has recently published a book on the decarbonisation of the economy.   The Efficient Market Hypothesis (EMH) coined by Eugene Fama in 1970 posits that financial markets are highly efficient in reflecting all available information at any given time. According to this theory, it is impossible to consistently achieve returns that outperform the overall market through expert stock selection or market timing, because asset prices already incorporate and reflect all available information. This hypothesis forms the foundation of many investment strategies and financial models, predicated on the assumption that markets are rational and information is disseminated and acted upon swiftly and accurately. It is the touchstone on which all index investing ...

  Green bonds have emerged as a crucial tool in the global effort to finance sustainable development. These financial instruments, designed to fund projects with positive environmental impacts, are viewed as essential in combating climate change and promoting sustainability. However, despite their potential, green bonds face several limitations that must be addressed to fully realize their benefits. This article explores the key challenges and considerations in the green bond market. One of the significant challenges associated with green bonds is the high cost of verification and reporting. Issuers are required to provide detailed disclosures on the use of proceeds, the selection of projects, and the environmental benefits achieved. This process often involves third-party verification to ensure compliance with established standards, such as the Green Bond Principles (GBP). The costs associated with these processes can be substantial, particularly for smaller issuers, potentially l...

Jean-Baptiste Vaujour is a Professor of Practice at emlyon business school where he teaches about consulting and green finance. He is an energy economist and a registered expert at the EU Commission and for the World Energy Council. He has recently published a book on the decarbonisation of the economy.   Sustainability Linked Loans (SLLs) have emerged as a dynamic financial instrument that aligns corporate financing with sustainability objectives ( source ). Unlike traditional loans, SLLs are tied to the borrower’s achievement of pre-determined sustainability performance targets (SPTs). As corporations increasingly prioritize ESG criteria, SLLs offer an opportunity to integrate these considerations into their financial strategies. This article explores the fundamentals of SLLs, their benefits, and the considerations necessary for maximizing their potential. What are Sustainability Linked Loans? SLLs are designed to incentivize borrowers to improve their environmental per...