Grant from INSPIRE


The Sustainable Finance Lab has won a grant for the third call of the International Network for Sustainable Financial Policy Insights, Research and Exchange (INSPIRE). INSPIRE is an academic partner of the supervisors and central banking Network for Greening the Financial System (NGFS). The research team (Dr. Moutaz Altaghlibi and Drs. Rens van Tilburg) will work on Energy transition intersectoral dependencies under different monetary and supervisory policy scenarios. The research aims to investigate the effectiveness and efficiency of central bank interventions in the transition towards a low carbon economy. A general equilibrium model is used that captures the feedback loops across sectors through energy prices channel, distinguishing between sectoral green and brown assets. We intend to track policy effects on sectoral cash flows, return on invested capital, along with their effects on price levels, inflation and financial stability under different transition scenarios. The results are expected to be delivered on June 30, 2021.

All funded projects for INSPIRE can be found via this link.

Moutaz Altaghlibi


Debt as a shared responsibility: A present-day application of the debt jubilee.


By Arjo Klamer, Dirk Bezemer, Vera Lubbersen, Michael Milo, Irene van Staveren, Thomas Steiner, and others.

Resume of a position paper written as part of the three-year programme Finance and the Common Good (2019-2021) of Socires and the Sustainable Finance Lab.

Debts have always been a moral issue. They are laden with norms and values. Being in debt brings value judgments. Creating debt creates responsibility. The question is: are we treating debt properly today? Do debts and the relationships they imply need to be reassessed?

Lees verder →

Arjo Klamer


What strings to attach to governments’ equity support?


By Aleksandar Simić and Rens van Tilburg

The European Commission is working on a framework for equity support, the next generation of government support measures for companies. This blog discusses the US experience with equity support for car manufacturers in 2008, the current developments with the airline industry, as well as current different proposals of this nature from the leading think tanks.

Lees verder →

Aleksandar Simić


Digital central bank money doesn’t need laundering


Money is dirty. Literally. Empirical findings (also here and here) show that various strains of bacteria, viruses, and fungi live on our banknotes and coins. This disease-transmission channel is especially relevant now with the COVID-19 pandemic that killed thousands of people worldwide.

Lees verder →

Aleksandar Simić


The Corona Test For The Euro Zone


COVID-19 will test the new financial architecture of the euro zone. Since the euro crisis, new instruments have been developed, such as the European Stability Mechanism (ESM) and the ECB’s Outright Monetary Transactions (OMT). OMT being the bazooka the ECB created, but never needed to use, after Mario Draghi in 2012 pledged to do “Whatever it takes to save the euro”. The question now is whether policymakers are willing to use them.

Lees verder →

Rens van Tilburg


What tracking assets can do for the circular economy


Bericht bekijken

Asset tracking, which includes monitoring the identity, location and condition of individual components or products, can effectively extend the economic lifetime of products, thereby bringing a host of benefits to companies. This is according to new results launched today by the Community of Practice (CoP) – consisting of Rabobank, Allen & Overy, Schiphol Group, Avery Dennison on behalf of the NBA (The Royal Netherlands Institute of Chartered Accountants), Circularise, Everledger, Fairphone, Sustainable Finance Lab and Circle Economy.

Looking at the benefits of asset tracking for Product-as-a-Service entrepreneurs, the CoP sets out to tackle the complexity of asset tracking by uncovering the best technologies and mapping the financial and legal implications of the process. To ensure that the research outcomes reflected reality they teamed up with Fairphone, who aims to launch a Fairphone-as-a-Service to businesses using their recently launched, easy to repair modular Fairphone 3.

Lees verder →

Elisa Achterberg


The Platform Economy


In the past decade, tech companies became ubiquitous not only in our daily lives but also in the global economy. By the beginning of the 2010’s the list of largest companies in the world as measured by market capitalisation was dominated by oil producing companies and financial services.[1]  In 2019 however, seven out of the ten largest companies in the world are tech companies.[2] Along with rising economic power, their public image has shifted.

Digitization and the ‘sharing economy’ once went hand in hand, promising a new and better society. Inspired by San Francisco’s hippie culture, the entrepreneurs of Silicon Valley portrayed an image of do-gooders. But how did we get from the cozy sharing platforms of the early days of the internet to the imposing and omni-present corporate platforms of today? We  show that they are a logical result of the forces at work in the platform economy.[3] And these same forces lead these tech companies into the financial sector in search for (personal) financial data.

Lees verder →

Max van Son


Where does the money come from? Sources of finance for the European energy transition


We analyse supply and demand in major scenarios for the European energy transition until 2050. We then contrast it to the available sources of finance. The good news is that the private money is – in principle – available to finance the investments. The bad news however is that does not (yet) come in the forms and shapes that the European energy sector would need it. Changing the situation requires action from both the private and the public sector in the coming years[1].

We know how much we need

Many studies highlight the large amounts of investment into energy supply and demand that is required. An innovation-led sustainability transition requires both investments in invention and innovation as well as diffusion in a diversified financial system (Polzin et al., 2017). Our review reveals that under the individual investment and lending mandates the money is available. Many of the scenario-based analyses explicitly or implicitly neglect the sources of finance rather focusing on aggregate investment needs. For example McCollum et al. (2018, p. 591) state that ‘[…] given the nature of these models, we expressly address the question of ‘Where are the investment needs?’, not ‘Who pays for them?’’.

The money is available, but…

Our analysis further shows, on the one hand, that the volumes are available in the order of magnitude needed for a successful energy transition, especially when it comes to institutional investors. On the other hand, the numbers also reveal a qualitative mismatch. There is ample capacity to invest in scaling mature technologies, but there are shortages in (upstream) innovation finance, especially research, development and demonstration (RD&D) as well as venture capital and private equity. There the amounts are smaller, but the downstream impacts are not. There is no quantitative issue in freeing up these resources and a little will go a long way in solving the most urgent bottlenecks. However typically the types of finance suitable for funding experimentation are not so easy to mobilize in Europe’s highly institutionalized, bank based and regulated financial sector (Elert et al., 2019).

Who can do what?

It becomes apparent from our review that there is plenty of financing available especially in the later stages of technology lifecycle (see Figure 1) when the risks involved are comparably low. That means even within the current composition of equities, bond and alternative investments, institutional investors could engage in financing large-scale (low-risk) renewable energy projects (Röttgers et al., 2018). An effective reform of regulation and governance to allow these investors to engage more in unlisted long-term equity and debt will make ample funding available to scale the necessary technologies. These could be realised through intermediate channels such as green bonds or YieldCos but institutional investors also heavily engage in public equity markets another underutilized source (La Monaca et al., 2018).

In the earlier stages of the technology lifecycle (with considerable risks) the problem is more urgent. Here only hardly scalable solutions such as small and distributed finance and venture capital are available. These are also able to address significant early stage risks (see Figure 1). Larger ticket sizes and higher risks can only be handled by (state) investment banks and some private equity funds. State investment banks have the potential to scale-up their investments significantly. However, their main role would be in mobilising private finance through co-investments, signalling and education (Geddes et al., 2018).

Figure 1: Sources of finance for the energy transition (framework adapted from (Criscuolo and Menon, 2015))

Unlocking the potential

Our review yields three major ways of unlocking the potential of different sources of finance. First, initiatives promoting socially responsible investments from within the sector (such as pension funds and sovereign wealth funds) that base their investments also on ESG criteria could be scaled up (G20 Green Finance Study Group, 2016) An innovation-led energy transition needs risk-carrying capital in smaller tickets (Owen et al., 2018; Polzin et al., 2018). That needs freeing equity from individual retail investors or institutional funding from pension funds, insurance companies or sovereign wealth funds (Polzin et al., 2017). Finally, a recurring recommendation is the urgent development expertise with technologies, investment vehicles and transition paths.

References

Criscuolo, C., Menon, C., 2015. Environmental policies and risk finance in the green sector: Cross-country evidence. Energy Policy 83, 38–56. https://doi.org/10.1016/j.enpol.2015.03.023

Elert, N., Henrekson, M., Sanders, M., 2019. Savings, Finance, and Capital for Entrepreneurial Ventures, in: Elert, N., Henrekson, M., Sanders, M. (Eds.), The Entrepreneurial Society: A Reform Strategy for the European Union, International Studies in Entrepreneurship. Springer, Berlin, Heidelberg, pp. 53–72. https://doi.org/10.1007/978-3-662-59586-2_4

G20 Green Finance Study Group, 2016. G20 green finance synthesis report. UNEP Inquiry.

Geddes, A., Schmidt, T.S., Steffen, B., 2018. The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany. Energy Policy 115, 158–170. https://doi.org/10.1016/j.enpol.2018.01.009

La Monaca, S., Assereto, M., Byrne, J., 2018. Clean energy investing in public capital markets: Portfolio benefits of yieldcos. Energy Policy 121, 383–393. https://doi.org/10.1016/j.enpol.2018.06.028

McCollum, D.L., Zhou, W., Bertram, C., Boer, H.-S. de, Bosetti, V., Busch, S., Després, J., Drouet, L., Emmerling, J., Fay, M., Fricko, O., Fujimori, S., Gidden, M., Harmsen, M., Huppmann, D., Iyer, G., Krey, V., Kriegler, E., Nicolas, C., Pachauri, S., Parkinson, S., Poblete-Cazenave, M., Rafaj, P., Rao, N., Rozenberg, J., Schmitz, A., Schoepp, W., Vuuren, D. van, Riahi, K., 2018. Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development Goals. Nature Energy 3, 589–599. https://doi.org/10.1038/s41560-018-0179-z

Owen, R., Brennan, G., Lyon, F., 2018. Enabling investment for the transition to a low carbon economy: government policy to finance early stage green innovation. Current Opinion in Environmental Sustainability, Sustainability governance and transformation 2018 31, 137–145. https://doi.org/10.1016/j.cosust.2018.03.004

Polzin, F., Sanders, M., Stavlöt, U., 2018. Mobilizing Early-Stage Investments for an Innovation-Led Sustainability Transition, in: Designing a Sustainable Financial System, Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham, pp. 347–381. https://doi.org/10.1007/978-3-319-66387-6_13

Polzin, F., Sanders, M., Täube, F., 2017. A diverse and resilient financial system for investments in the energy transition. Current Opinion in Environmental Sustainability 28, 24–32. https://doi.org/10.1016/j.cosust.2017.07.004

Röttgers, D., Tandon, A., Kaminker, C., 2018. OECD Progress Update on Approaches to Mobilising Institutional Investment for Sustainable Infrastructure. https://doi.org/10.1787/45426991-en

Bio

Friedemann Polzin is Assistant Professor of Sustainable Entrepreneurship and Innovation at Utrecht University School of Economics (U.S.E.) and associated researcher at the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/FHJPolzin | https://twitter.com/friedemann_p

Mark Sanders is Associate Professor Economics of Transition and Sustainability at Utrecht University School of Economics (U.S.E.) and member of the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/MWJLSanders | https://twitter.com/mwjlsanders


[1] Polzin, F., Sanders, M., 2019. How to fill the ‘financing gap’ for the transition to low-carbon energy in Europe? USE Discussion paper series 19-18. Available at: https://www.uu.nl/en/files/rebousewp20191918pdf

Friedemann Polzin


European Alternative Finance Research Conference 2019


The European Alternative Finance Research Conference took place on the 15th of October which was already the 3rd edition of this conference. It convened around 70 researchers, practitioners and policy makers at the Utrecht University who occupied all available seats at the conference venue. That speaks for a growing network around the European Centre for Alternative Finance (ECAF) that addresses relevant topics around access to finance for SMEs the past couple of years.

The keynotes: Equity crowdfunding and alternative finance market development

Our keynote speaker was Armin Schwienbacher from the SKEMA Business School who talked about the topic “Equity Crowdfunding – anything to celebrate? He highlighted the rapid growth of the industry using the French market as an example. While equity crowdfunding has matured, still many challenges (such as the need for a working secondary market) needs to be addressed and platforms need to adjust their business model to remain competitive.

In the afternoon, Tania Ziegler (Cambridge Centre for Alternative Finance, UK) and Rotem Shneor (Agder University, Norway) gave an insight into their work on the alternative finance benchmark report, especially the challenges of collecting and harmonizing the data. Soon this work will be publicly available on a Worldbank website.

Capital raising in ICOs and crowdfunding for creative entrepreneurs

During the individual conference sessions with several different topics took place. In the initial coin offering (ICO) session, participants discussed potential fraud trough this new form of SME financing, as products and services advertised are very uncertain. In parallel participants discussed the success factors of using alternative finance in the cultural and creative sector. Crowdfunding emerged from this sector but the discussion in the past has focused on investment-based crowdfunding in other sectors instead. Scholars however demonstrated that this topic is still relevant.

Crowdfunding institutions and market development

Crowdfunding and alternative finance more broadly do not work without a conducive regulatory and institutional framework, which was discussed in another individual session. A harmonized crowdfunding regulation is underway at the European Union. Another important question was related to the growth potential of the alternative finance market. Scholars demonstrated a forecast model for the UK, one of the most developed markets.

Funding dynamics and relationships with traditional financiers

What is actually happening on crowdfunding platforms? This and related questions were discussed in-depth at an individual session on funding dynamics. Prior investments, other investors and the communication with the fundraiser influence our decision to invest.

Finally alternative finance companies do not operate in the void. They cooperate with existing firm thereby enabling the usage of new types of infrastructure such as Blockchain.

Forging relationships

The unique set-up of the conference, including policy makers e.g. from the European Commission as well as practioners from European organisations enabled fruitful discussion and the development of new relevant research questions and interesting connections.

The Sustainable Finance Lab (SFL) is co-founder of the European Centre for Alternative Finance (ECAF).

Friedemann Polzin