Why Rewiring Our Financial System Should Concern Us All?

How can finance better serve our economy, society, and planet? Finance is at the centre of everything. It determines which companies grow, which projects are developed, which innovations come to life, and which values shape our world. Until now, it has been wired to solely focus on profit. Today, the EU is attempting to rewire our financial system to meet the needs of society and planet. What I want to know is… does everyone understand the true meaning of this?

Stéphanie Mareva Failloux

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My name is Stéphanie Mareva Failloux. I am from Tahiti and have lived in Paris for twenty-five years. After graduating in 1997, I started my career in finance, first at Banque Paribas and then at Lehman Brothers in London and Paris. In 2006, I set up a financial advising company, OraNui Finance, based in Paris and Tahiti. My partner and I aim to offer objective advice taking into account our clients’ interests and their situation – as well as current economic conditions. We integrate long-term approaches and favour sustainable investments. Too often in Tahiti, clients are lured into all sorts of questionable financial products, sold by unscrupulous advisors who then disappear and leave the island. This is not exclusive to Polynesians, but with Tahiti being so small, scams, like news, spread quickly.

In the past twelve years, we have entered into an era of low, almost nil, interest rates. They are not likely to rise again. In such an environment it is impossible to guarantee high returns without taking risk. Some products, like some unlisted real estate funds, may still return around 5%, but these are not guaranteed. Even if the risk may seem lower than other assets. Our job as financial advisors is based on common sense, long-term vision, and trust.

The 2008 financial crisis deeply shook me. I lived the crisis inside out: I worked at Lehman Brothers, whose bankruptcy marked the crisis onset; I studied at universities which gave birth to and promoted the flawed free market hegemony; and, most importantly, I saw my then-husband (Antoine Flamarion, Founder of Tikehau Capital) lose all his fund’s assets overnight, since Lehman was his prime broker. 

I lost faith in the financial system and no longer wanted to sell products–structured by avid (or blind) bankers–that are too complex to understand and have no real use.

My life took a 180° turn. I looked for other paths, and eventually found the world of social entrepreneurship – a world I did not know anything about, but that nevertheless resonated with me. I realised that the alignment of all actors (what we now call “stakeholders”) involved in Business, Government, Society, Environment, is essential in creating sustainable systems. This inspired me to make a documentary film in 2012, called Social Business, a New Path for Capitalism?”. I started considering new ways of thinking, working, supporting, investing, creating… none of which would have happened without understanding the interconnections made with finance.
 

Understanding finance can foster a needed paradigm shift

This year, I started teaching a course on Sustainable Finance at the American Business School in Paris. A first for the school and a first for me. I had to create the entire course for a class of twenty-one students from fifteen different countries. Let me tell you, it is quite a challenge to reconcile the complexities of finance with sustainability, a term which seems to be on everyone’s lips lately. I still picked up the gauntlet with no hesitation. Indeed, I am convinced that the evolution of the financial system is necessary for a paradigm shift to occur… and to change the world! For the system to evolve, we need to understand its intricacies; how it’s structured, how it functions (or fails to), and the role it plays in society.

The financial system is like the control centre of the economy, since it dictates where and how capital is allocated. So far, finance has mostly directed capital towards itself, maximising its own revenues, rather than maximising the potential of our overall economy, society and environment.

This has resulted in ecological disasters (with the extinction of 60% of the non-human vertebrates in the past 40 years), the rise of populism (Trump, Brexit and  Bolsonaro for example), and an increase in inequality and global poverty (extreme poverty levels might have decreased, but a shift from 1.90 USD/day to 2.50 USD/day or even 4 USD/day is not a true exit from poverty). Finance may not be solely responsible, yet it is no coincidence that its phenomenal growth coincides with the expansion of the above pathologies.

We need to understand that finance holds the reins of the economy with the allocation of capital: the economy is embedded in society, which is itself embedded in the environment. Everything is linked. If the financial system does not support the real economy, both society and planet will suffer.

Understanding climate change can help Sustainable Finance thrive in Europe

In 2018, the European Commission understood the role of the financial system in the fight against climate change and thus unveiled an Action Plan on Sustainable Finance1“Sustainable finance generally refers to the process of taking due account of environmental, social and governance (ESG) considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects. More specifically, environmental considerations may refer to climate change mitigation and adaptation, as well as the environment more broadly, such as the preservation of biodiversity, pollution prevention and circular economy. Social considerations may refer to issues of inequality, inclusiveness, labour relations, investment in human capital and communities, as well as human rights issues.The governance of public and private institutions, including management structures, employee relations and executive remuneration, plays a fundamental role in ensuring the inclusion of social and environmental considerations in the decision-making process.” https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/what-sustainable-finance_en. The plan is structured around three key objectives:2https://ec.europa.eu/info/publications/sustainable-finance-renewed-strategy_en

  1. reorient financial flows towards sustainable activities,
  2. mainstream sustainability in risk management, and
  3. promote greater transparency on these subjects.

To accelerate and drive their strategy through, the European Commission will adopt a renewed Sustainable Finance Strategy based on a public consultation that took place this past July.3“Sustainable finance generally refers to the process of taking due account of environmental, social and governance (ESG) considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects. More specifically, environmental considerations may refer to climate change mitigation and adaptation, as well as the environment more broadly, such as the preservation of biodiversity, pollution prevention and circular economy. Social considerations may refer to issues of inequality, inclusiveness, labour relations, investment in human capital and communities, as well as human rights issues.The governance of public and private institutions, including management structures, employee relations and executive remuneration, plays a fundamental role in ensuring the inclusion of social and environmental considerations in the decision-making process.” https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/what-sustainable-finance_en

As you can see, there is hope; and from a regional perspective, it seems that Europe is leading the way. However, to sustain such hope, understanding will—again—be key for both financial actors and ordinary citizens.

Responsibility for climate change and transition must be integrated at all levels of the financial sector, relating to all players involved; from top management to operational teams, as well as any other actor gravitating in that ecosystem. This topic can no longer be left between the walls of dedicated sustainable development teams. Lack of understanding will lead to lack of capacity. Climate change needs to be an integral part of financial education and training.

After one semester of teaching sustainable finance, I can already see the potential when the next generation of financial actors feel both responsible and equipped to tackle the problem.

When finance moved away from the real economy, it also moved away from citizens. How many average citizens know what is being done with their savings? And what would be the effects if they knew? Though there are many people making efforts to change their daily habits in the fight against climate change, many still feel very disconnected from this global truth. Sustainable savings could help to promote both citizen involvement and education on climate change. It could also present an opportunity to engage the general public in a debate on what is concretely involved in financing the transition.4For instance, the sustainable saving programme is a concept more popular in the Netherlands. In fact, for some time now, the Dutch have been investing their savings in transparent (meaning knowing exactly what their money is funding) green labelled funds, all the while benefitting from tax incentives by the government to encourage more interest in such investments. See Financing a sustainable future: The attitude of Dutch savers towards green saving products.

And of course, our understanding depends on transparency which depends on available data. Today, the EU has proposed a taxonomy5The EU taxonomy is a tool to help investors understand whether an economic activity is environmentally sustainable, and to navigate the transition to a low-carbon economy. Setting a common language between investors, issuers, project promoters and policy makers, it helps investors to assess whether investments are meeting robust environmental standards and are consistent with high-level policy commitments such as the Paris Agreement on Climate Change., an index tool to help investors determine the sustainable nature of an economic activity, and to navigate the transition to a low-carbon economy. However, the development of data around sustainable activities is still at its infancy. We will need to bring together great efforts from all levels of society to develop, keep current, and (if need be) expand such data. Our collective intelligence will be key here.

I understand interconnections, but the future depends on everyone’s understanding

I could speak about finance for hours, but I am not a “financier” per se. I am an entrepreneur with multiple passions, in finance but also expanding to sustainable business, art, coaching, education, female leadership6I also believe that women and female voices have an essential role to play in this transition. This is why I support and coach women in their projects and business creation, as well as organising conferences for women about leadership and entrepreneurship.  and empowerment. Everything I do points to the same direction. Everything is aligned. I work for the transition to a new world, a new economy, and a new form of capitalism7This was even the title of my film 8 years ago…!. I understand these interconnections, and I see them intersecting my own realities, both horizontally and vertically. I went from an upbringing in Tahiti (due to be devastatingly and disproportionately affected by climate change), to experiencing an uncertain global banking system, to exploring the endless adventures of entrepreneurship, to teaching university students eager to learn, which also exposed me to my eagerness to teach… Seems pretty dizzying doesn’t it?  Yet despite the dizzying effect, one thing is very clear for me: multi-level transformation is imperative.

The Covid-19 crisis is a tragedy, but it is also an opportunity for accelerated change. This crisis has demonstrated that when our back is against the wall, we adapt.

It has also demonstrated that when we are immobilised, nature reclaims its rights in a wink. We do not control nature; it will survive well after we are long dead. We are not destroying the planet either, we are destroying our own resources, those we need for our own survival. If we do not see this crisis as a wake up call, a sign that we need to change our way of consuming, doing business, handling the environment and society, the next crisis may be even more violent, and we might not be able to bounce back…

In all honesty, I don’t know if I am properly answering the question I first set out when writing this piece. If I’m not, then that is okay. I explore, I learn and, when given the chance, I act at my level, and hope that others will be inspired to do the same.

 To conclude, I will end with a quote and a thought.

“If climate was a bank, we would have saved it a long time ago.”

We could replace climate with health, education, human dignity, etc.—all essential needs that I hope will one day go beyond the “price tag”. 

 

 

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Stéphanie Mareva Failloux

Born in Tahiti, educated at Harvard, Cambridge and Sciences Po, now living in Paris, I am a multi-passionate entrepreneur with expertise in sustainable finance and business, female empowerment, and art. I revel in connecting worlds and individuals who support the transition to a new economy where business, society and the environment align. Growing up on a small island, there was no indication that my journey would lead here. At 14, I nearly died in a motorcycle accident and spent two weeks in a coma. It was a hardship but also a miracle and a blessing - I discovered strengths I did not suspect and developed the will to never give up. Since then, my life has been filled with ruptures, rebirths, and extraordinary encounters. Today, I have aligned my professional life with my personal values and feel I am in the right place. That happens to be here in Europe—a formidable cross-roads of culture, diversity, and history. What started with an accident at one point in my life, led me to Europe at another point. So I guess I am an Accidental European after all.
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