Submitted Abstract
An increasing number of “green” and “sustainable” investment funds have become available on financial markets. While these products represent a praiseworthy effort towards a more responsible financial sector, the lack of a general framework regarding their actual environmental performance may run the risk of undermining their credibility and increase the risk of greenwashing. Both institutional and retail investors demand increasingly clear, robust and transparent metrics to assess sustainable and green financial products. Developing these metrics is a challenging exercise because of (i) the difficulty to link the financial products with their underlying economic activities (ii) general lack of proper assessment of the activities themselves (iii) overall complexity of environmental impact assessment. In order to overcome these problems, we propose to apply life cycle assessment (LCA) methods to assess financial products. This proposal stems therefore from the domain of Sustainability Assessment, specifically lifecycle-based models and metrics, and not from the domain of Sustainable Finance. Despite the evident meaningfulness of using LCA to this aim, very little research has been performed on this topic during the last decade. Two approaches based on LCA techniques are proposed. The first one assesses the environmental performance of investment funds and aims to integrate lifecycle based environmental criteria in the investment decision. We will develop an LCA based methodology to assess both the environmental impact of portfolios, in order to support the integration of ESG criteria in the investment decision via a transparent and robust methodology. The second important innovation of this project will be the development of a methodology to assess the expected environmental positive impacts of green bonds based on process-based LCA. This will include the development of an LCA database of benchmark activities that can be funded by bonds and a method to assess the handprint associated to the green bond ex-ante, during the project implementing and post-ante while progressively adding relevant information. Validation will be done using investment test beds in the field of renewable energy and biodiversity.