« Betting against renewable energy reflects a lack of long-term vision »

This December looks set to be the month of "green" finance. This theme was at the heart of Building Bridges in Geneva, a major event that last week brought together speakers from around the globe. The 2024 edition took place in a particularly complex context, because green finance is not exactly in vogue these days. Behind the fine speeches, actions sometimes appear less glorious.

After a decline in sustainable investments observed in the United States earlier this year, Switzerland is facing a similar slowdown. A research institute in finance based in Zug found that the growth of financial flows toward investment funds that meet Environmental, Social and Governance (ESG) criteria is currently no longer sufficient to catch up with that of traditional funds. During the autumn, the specialized platform Hazeltree also revealed that the world's largest hedge funds preferred to bet against "green" technologies and sustainability, while investing long term in fossil fuels.

Given the context, we deemed it appropriate to question the actors - small and large - of finance about their relationship to sustainable investment. The answers of Sara Razmpa, sustainable investment specialist for Piguet Galland & Cie SA.

What is your approach to so-called green finance?

Our approach to green finance is based on reducing undesirable exposures to certain activities while seamlessly integrating Environmental, Social and Governance (ESG) criteria into our investment strategy. This integration allows us to manage non-financial risks effectively and to promote sustainable long-term value creation. Our methodology, rigorously data-driven, is both structured and systematic, ensuring an objective and solid framework.

Unfortunately, in the absence of explicit environmental or social objectives, short-term profitability often wins out over longer-term ambitions for many people.

What is your reaction when you hear that a large majority of hedge funds prefer to short their positions in renewable energies in favor of fossil fuels?

These positions reflect a lack of long-term vision and a divergence within the financial markets. Unfortunately, in the absence of explicit environmental or social objectives, short-term profitability often wins out over longer-term ambitions for many people. Consequently, hedge funds that favor fossil fuels seek to capitalize on immediate market movements and the sudden increase in demand caused by certain macroeconomic events.

How should one adapt their investments in such an ambiguous reality?

An essential step to achieve a clear vision is to identify the investors' fundamental objectives as well as the sustainability preferences they wish to realize. It is therefore crucial to determine whether the objective of an investment is purely financial or whether the investor wishes to avoid certain companies that present reputational and ESG risks, or to align their investments with certain social and environmental values.

Once this objective is clearly defined, it becomes easier to develop an appropriate strategic action plan. For example, if the investor has long-term sustainability objectives in addition to their financial objectives, buying fossil fuels and selling renewables would go against one of their objectives!

This news raises a fundamental question: is the financial sector really ready to sacrifice part of its profitability for the good of the planet?

It depends on the investment horizon and the expected outcome. Investing with a sustainability objective, whether environmental or societal, is a bet on long-term trends supported by regulatory developments and gradual societal changes. If the financial objective of the investment is short-term, taking sustainability objectives into account may seem to compromise profitability.

Although areas such as impact investing and green bonds illustrate significant progress, widespread adoption across the market remains insufficient.

With the acceleration of the transition to a low-carbon economy, compelling evidence supports solid performance prospects in sectors such as renewable energy and green technologies.

The willingness of the financial sector to prioritize sustainability over short-term profitability remains inconsistent and fragmented. Although areas such as impact investing and green bonds illustrate significant progress, widespread market adoption remains insufficient. To bridge this gap, robust regulatory frameworks and increased transparency on the long-term financial risks related to climate inaction are essential in order to align capital flows with sustainable objectives.

ESG criteria are increasingly struggling to convince — is there an urgent need to establish new standards?

The loss of confidence in ESG criteria is partly explained by inconsistent measures and concerns related to greenwashing. Establishing harmonized standards at the global level and integrating appropriate sector-specific benchmark criteria can strengthen credibility, similar to what is being put in place in Europe.

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