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Essays on Climate Finance Josue Banga Essays on climate finance Josue Banga To cite this version: Josue Banga. Essays on climate finance. Economics and Finance. Université Grenoble Alpes [2020-..], 2020. English. NNT : 2020GRALE001. tel-02954765 HAL Id: tel-02954765 https://tel.archives-ouvertes.fr/tel-02954765 Submitted on 1 Oct 2020 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. THÈSE Pour obtenir le grade de DOCTEUR DE L’UNIVERSITÉ GRENOBLE ALPES Spécialité : Sciences économiques Arrêté ministériel : 25 mai 2016 Présentée par Josué BANGA Thèse dirigée par Jean-François PONSOT, Université Grenoble Alpes préparée au sein du Laboratoire Centre de Recherche en Économie de Grenoble dans l'École Doctorale Sciences Économiques Essays on Climate Finance Thèse soutenue publiquement le 18 juin 2020, devant le jury composé de : Monsieur Jean-François PONSOT Professeur, Université Grenoble Alpes, Directeur de thèse Monsieur Vincent GERONIMI Professeur des Universités, Université de Versailles Saint-Quentin-en- Yvelines , Rapporteur Monsieur Kenneth AMAESHI Professeur des Universités, University d'Edimbourg, Rapporteur Madame Esther JEFFERS Professeur émérite, Université de Picardie Jules Verne , Présidente Monsieur Redouane TAOUIL Professeur des Universités, Université Grenoble Alpes, Examinateur Monsieur Rolf TRAEGER Enseignant chercheur, conférence des nations unies sur le commerce et le développement, Examinateur Monsieur Étienne ESPAGNE Enseignant chercheur, Agence Française de Développement, Examinateur UNIVERSITÉ GRENOBLE-ALPES DOCTORATE THESIS Essays on Climate Finance Author: Supervisor: Josué BANGA Pr. Jean-François PONSOT A thesis submitted in fulfillment of the requirements for the degree of Doctorate in Economics in the Université Grenoble-Alpes Department of Economics iii Declaration of Authorship I, Josué BANGA, declare that this thesis titled, “Essays on Climate Finance” and the work presented in it are my own. I confirm that: • This work was done wholly or mainly while in candidature for a re- search degree at this University. • Where any part of this thesis has previously been submitted for a de- gree or any other qualification at this University or any other institu- tion, this has been clearly stated. • Where I have consulted the published work of others, this is always clearly attributed. • Where I have quoted from the work of others, the source is always given. With the exception of such quotations, this thesis is entirely my own work. • I have acknowledged all main sources of help. • Where the thesis is based on work done by myself jointly with others, I have made clear exactly what was done by others and what I have contributed myself. Signed: Josué BANGA Date: June 18, 2020 v AVERTISSEMENT “La Faculté d’Economie de l’Université Grenoble Alpes n’entend donner aucune ap- probation ni improbation aux opinions émises dans les thèses; ces opinions sont con- sidérées comme propres à leurs auteurs.” vi “Wherever we live, whoever we are, we all share the same responsibility: make our planet great again” -Emmanuel Macron, President of France. vii UNIVERSITÉ GRENOBLE-ALPES Abstract Department of Economics Doctorate in Economics Essays on Climate Finance by Josué BANGA viii This thesis is structured around five essays. The first essay is a theoretical paper that investigates the nexus between climate finance and structural transformation in developing countries, through the lens of political economy. So far, climate finance and structural transfor- mation have been analyzed separately, resulting in a gap in the literature re- garding the transformation-enhancing capacity of the former on the later. Yet as this essay shows climate finance -by its very nature- could be an effective driver of a sustainable structural transformation, provided it is allocated to productive environmental driving sectors. These include, but are not limited to, potential buoyant sectors such as renewable energy, construction, ecosys- tem services and agriculture as well as waster and waste management. The second essay estimates the transition risk of climate change for the constituents of Morgan Stanley Capital International Index (MSCI-Europe), using a three scenario-based analysis. The results suggest that, regardless of which scenario plays out, the implementation of an effective carbon pricing at the European level would have significant, yet differentiated impacts on the market price of MSCI Europe index’s constituents. In particular, if the transformation scenario or the coordination scenario plays out, firms oper- ating in the most carbon-intensive sectors such as utilities, electricity, trans- port, and oil are much more likely to suffer the bulk of financial losses due to carbon pricing, while those losses would be less significant, should the fragmentation scenario occur. Thus, there is a risk of rising lobbying strate- gies from carbon backed-investors against policies aimed at accelerating car- bon divestment. These findings imply that, without an effective climate risk awareness among those investors, carbon pricing alone would not be enough to hasten the transition towards a low-carbon economy. The essay, therefore, suggests the incorporation of mandatory climate-risk stress testing methods into firms’ investment decision-making. The third and fourth essays of this thesis take stock of the merging green ix bond market by investigating on one hand the barriers its faces in devel- oping countries, and by examining the determinants of the spread between corporate green bonds and risk-free government bonds on the over hand on the other hand. While market barriers and institutional barriers are found to be the major obstacles to the development of green bonds in developing countries, factor such as the order of issuance, (i.e. bonds issued by the same issuer at different times), bond rating, and coupon appeared to be ones of the main determinants of the spread on corporate green bonds. In order to address the above barriers and scale the market up, development banks as well as local governments should play a proactive role in helping develop- ing countries to issue green bonds and to manage their proceeds. Moreover, the design of an international labelling and controlling system on the use of green bond proceeds can increase transparency on green bonds while attract- ing new types of investors. The fifth and last essay examines the role central banks can play in steer- ing financial markets towards sustainable investing. This essay argues that climate stability is a determinant of financial stability in the long term. Thus, as guardians of financial stability, central banks are expected to play a proac- tive role in ensuring that the financial system is well prepared for the low- carbon transition. The implementation of Permanent Lending Facilities to Priority Sectors (PLFPS) could be one way for central banks to foster the tran- sition towards a greener and cleaner economy. Although such a mechanism would require a broadened central bank mandate, it does not necessarily imply that central banks should give up on their hard-won independence. Instead, by incorporating climate change settings into their monetary pol- icy design, central banks could contribute not only to addressing one of the biggest threats of the 21st century, but also to rebuilding trust between gov- ernments and their citizens. x Résumé: L’année 2015 a été marquée par un tournant décisif dans les négocia- tions internationales sur le climat. Les Nations Unies ont adopté les Objec- tifs de Développement Durable pour remplacer les Objectifs du Millénium pour le Développement. Plus ambitieux et plus inclusifs que les OMD, les ODD sont au nombre de dix-sept et visent entre autres à éradiquer la pau- vreté, assurer la paix dans le monde, et lutter contre le changement clima- tique. Le but de ce dernier est de placer la protection de l’environnement au cœur des activités quotidiennes des hommes (UNEP, 2018). Le Groupe d’Experts Intergouvernemental sur l’évolution du climat a montré que les activités humaines contribuaient de manière significative au changement cli- matique (IPCC 2014). C’est pourquoi les décideurs publics doivent prendre des mesures fortes pour réduire l’empreinte carbone de notre économie. Trois mois après l’adoption des ODD par les Nations Unies, l’accord de Paris, signé en décembre 2015 marque une nouvelle étape décisive dans la lutte contre le changement climatique. Adopté par environ deux cent chefs d’États et de gouvernement, l’accord de Paris a réaffirmé la nécessité de soutenir les pays en développement dans leurs efforts d’atténuation et d’adaptation au changement climatique (UNFCCC, 2015). Ensuite, la Conférence d’Addis-Abeba souligne l’importance de la mobil- isation des ressources domestiques mais aussi internationales pour répondre au défis du développement durable et plus spécifiquement à celui du change- ment climatique (United Nations, 2015b). Dans la même veine, la Conférence des Nations Unies sur le Commerce et le Développement a souligné la né- cessité pour les pays en développement d’accélérer la transformation
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