• Olivier

Sustainability in the context of modern finance: A challenging duality

According to recent estimates, the decarbonization of the world economy and limitation of the rise of the global temperature to around 2 °C would cost some €6 billion annually over the course of 15 years (Dupré et al., 2016, Grandjean and Martini, 2016). In response to this challenge, numerous financial economists, practitioners of finance and public or private organizations have restated the need for a “re-embedding” of financial activity in the economic (Lagoarde-Segot, 2014, Lagoarde-Segot, 2015, Alijani and Karyotis, 2016, Paranque, 2017, Paranque and Pérez, 2016, Revelli, 2016, Revelli, 2017), and of the economic in the social (Fischbach, 2015b, Polanyi, 1983). This re-embedding entails the reassertion of the primacy of the social over economic and financial objectives, which are merely means to an end. It also means redefining our relationship with nature, which, rather than being viewed as an exterior to be preserved or shaped to our needs, should be perceived as a whole to which we belong (See also our Article about the conceptions of sustainability here).

It is not (only) a question of sustainable development in the ecological sense, but perhaps more importantly, in terms of social responsibility and the sustainability of our social links. However, such a renewal of the structural fabric of our modern financial system faces two major obstacles.

First, the change in conception and as such the re-embedding of modern finance in the current socio-economic realm faces the same constraints as current organizations and societies are subjected through the financialization of economic activity. Those entitites have witnessed the unprecedented acceleration of financial transactions and an increase in the complexity of the products exchanged. These phenomena stem from growth in computing power and are heralding the dawn of a financial “hyper-reality” which fully escapes the control of regulators (Schinckus, 2017).

Followingly, an attempt to reform finance through ethics alone may therefore seem somewhat far-fetched, to the extent that the direction of our financial system is determined by its technical basis, and by institutions and rules of law. Changing these structures would require a transformation in social relationships, which is difficult to imagine in the short-term – at least not without increased collective awareness of the urgency of the situation and our ability to change it. (Lagoarde-Segot & Paranque, 2018)

Second, an attempt to reconcile finance with societal issues is predestined to collide with deeply embedded assumptions and notions of financial theory and its resulting generated behaviours. Indeed, the development of academic finance has played a major role in shaping the behaviour of actors and the legal/technical system within which they operate (Boussard, 2016, Mackenzie and Millo, 2003, Muniesa, 2015). This means imposing on society as a whole the representations generated by this paradigm, including its vision and accompanying system of values. In this context, the reallocation of financial flows, insofar as it would require us to redefine the norms and tools used by the financial profession, would first involve a renewal of the representations in which actors are embedded.

However, the theoretical basis underlying the methods through which the resources needed to promote alternative models for economic action coordination might be mobilized are not currently widely shared or made clear, beyond the assertion that, in the long run, maximizing shareholder value can achieve social welfare (Jensen, 2001).

While finance as a common brings out the totalizing nature of financial theory, one can see this nature as a reason to reform it, in order to modify its factual basis in return. In the future then, the development of financial knowledge will have to be based on the recognition of the diverse nature of coordination methods and the ways in which milieu, history and institutions model the skills harnessed by actors to enter into contact with third parties. (Lagoarde-Segot & Paranque, 2018)

A potential vector of action could comprise two interconnected dimensions: the key would be to simultaneously work at a macrosocial level on conceptually redesigning financial objects, such as currencies, credits and value determination, and to promote, on a microeconomic level, the emergence of new ways of doing business, cooperating, and running organizations. On an intellectual level, this would of course mean engaging in active communication and debate with these new economic actors. (Lagoarde-Segot & Paranque, 2018)

S. Alijani, C. Karyotis, 2016, Finance and economy for society: Integrating sustainability Critical Studies on Corporate Responsibility, Governance and Sustainability, 11, Emerald Publishing Limited

V. Boussard, 2016, Finance at work, Routledge, UK

D. Dupré, A. Grandjean, M. Martini,2016, “La finance éthique, plan de la dernière chance pour la transition énergétique”. Revue Banque, n°802bis, Ethique & marchés financiers

F. Fischbach, 2015, Le sens du social. Les puissances de la coopération, Québec, Lux/Humanités

A. Grandjean, M. Martini, 2016, Financer la transition énergétique, Edition de l'Atelier, FR

M.C. Jensen, 2001, Value maximization, stakeholder theory, and the corporate objective function, Journal of Applied Corporate Finance, volume 14, n° 3

T. Lagoarde-Segot, B. Paranque, 2018, Finance and sustainability: From ideology to utopia, International Review of Financial Analysis, Volume 55, Pages 80-92, ISSN 1057-5219

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T. Lagoarde-Segot, 2014, La finance solidaire, un humanisme économique, De Boeck, Bruxelles

F. Muniesa, 2015, The provoked economy. Economic reality and the performative turn Routledge, UK

B. Paranque, R. Pérez, 2016, Finance reconsidered: New perspectives for a responsible and sustainable finance, Series: Critical Studies on CorporateResponsibility, Governance and Sustainability, Emerald Group Publishing Limited, p. 10

K. Polanyi, 1983, La grande transformation, Collection Tel, Gallimard, Paris

C. Revelli, 2017, Socially responsible investing SRI: From mainstream to margin?, Research in International Business and Finance, 39 (B), pp. 711-717

C. Revelli, 2016, Re-embedding financial stakes within ethical and social values in socially responsible investing SRI,Research in International Business and Finance, 38, pp. 1-5

C. Schinckus, 2017, Essay on financial information in the era of computerization, Journal of Information Technology

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