Thank you, Mr. Chair.

Ladies and gentlemen of the committee, by way of introduction, I would first like to say a few words about the journey that led me to make this presentation today.

First of all, my background is in geoscience. I started out as a geophysicist, but I became a financial consultant after that, just before the 2007 financial crisis. I began wearing two hats, one with a quantitative aspect, since it involves market risk modelling, and the other relating to environmental or climate risks in finance. At the time, those risks were not taken into account, but we'll come back to that.

In 2012, I co-founded a finance and climate think tank, which has had some influence on regulatory mechanisms in France and then in Europe, particularly in the lead-up to COP21.

Finally, for the past eight years or so, I've been completely focused on the academic side of things. I'm a transdisciplinary researcher in management science, economics, finance, a bit of accounting, as well as geoscience and environmental sciences.

I want to start with a positive to frame some of the things I want to talk about with you today. In terms of climate issues and, more recently, biodiversity, finance has more broadly made a lot of progress, because it started from a very long way away, which is a little less positive. I think it's worth revisiting that a bit.

When I started working in finance some 15 years ago, the major financing and investment banks, particularly those that were a little further ahead on environmental issues, were very proud to communicate their response to global warming. One of the biggest things they did was change the light bulbs in their offices. It's a bit disappointing when you get into the financial sector and find that out. In the end, there was virtually no connection between their vocation or their real mission, which is to finance the economy and industry, and climate. So not much was happening and very little was being shared.

What about fossil fuels and renewable energy? There was no comment. Basically, the big answer to the questions we could ask them at the time was that they were just bankers or investors and that people should look to their clients instead. So they had no real sense of responsibility for activities that may have an impact on climate change.

Today, obviously, that has changed a lot. You know the situation as well as I do; we can come back to it. In spite of everything, it's been a resounding success. They have made a lot of progress, but perhaps we need to qualify this positive point. If we look at the economy in its current state and the progress made on climate and the emissions trajectory, we can see that finance—if you'll pardon the expression—is not delivering the goods. We don't have what we should expect to have, which is portfolios that are decarbonizing. Portfolios fund the real economy—at least they're supposed to—but the real economy is still just as carbon intensive. We're still emitting as much carbon and greenhouse gases from year to year. Yes, we've stopped emissions from increasing, but we're still emitting and we've yet to hit the peak.

In short, finance hasn't been able to do this on its own. That may be the problem, meaning that it may not be up to finance to do the work. That could be worth discussing. It's exactly the same thing for biodiversity. In a way, finance may not be designed to decarbonize the economy.

I often quote a well-known financial mathematics professor in France, Nicolas Bouleau, who has written in a number of publications that financial markets were not designed to manage the planet. It's very important to remember that. That's not at all what they were designed for. So if we expect them to do something other than what they were designed for, their ability to do it may be called into question.

In addition, the conditions don't seem to be right for finance to spontaneously take on this decarbonization effort. Typically, if an activity remains legal and, in addition, it's profitable, even very profitable, it's virtually impossible for the vast majority of financial institutions to abandon that type of activity. Most of the time, they themselves feel that stopping that type of activity would be like pulling the rug out from under themselves.

In my opinion, then, either we have to change the tool, or we have to change the rules for using the tool. In other words, either we don't rely, or rely much less, on finance to decarbonize the economy, and instead look to industrial policy to shift demand—financing is very likely, I think, to adapt—or we change the fundamental rules of finance so that it can be effective and really play a leadership role in this decarbonization operation.

However, something else has happened instead. People were mainly banking on the fact that, by taking on significant financial risk related to climate change, or even systemic risk in the more or less distant future, the financial world would steer clear of those risks through its investment and funding decisions. We relied essentially on transparency and disclosure of financial risk that isn't considered material enough right now. There's not much going on.

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