The Role of Labels in Green Finance: Construction and Regulation of a Label Market in France

Revue d'economie financiere N 138, 2020-2, Forthcoming

HEC Paris Research Paper No. SPE-2020-1399

21 Pages Posted: 13 Nov 2020 Last revised: 24 Nov 2020

See all articles by Patricia Crifo

Patricia Crifo

Ecole Polytechnique, Palaiseau - Department of Economics; CREST - ENSAE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Rodolphe Durand

HEC Paris - Strategy & Business Policy

Jean-Pascal Gond

Cass Business School

Date Written: September 10, 2020

Abstract

A dozen of green and sustainable labels have emerged on the financial markets of the Member States of the European Union since the creation of a first label in 1997 in France, allocated to nearly 1,360 financial products, demonstrating a quantitative success, especially in France. This article analyzes the development of such green and socially responsible labels in Europe over the past decades , their construction dynamics, and questions the real benefits of a proliferation of labels in this industry. Does the multiplicity of factors contributing to the development of labels achieve the desired end or does it encumber the market with loud but uncertain signals? While household savings are at their highest and there is a demand for financing the ecological transition, does the proliferation of labels not complicate the readability of the market ? We show that, instead of simplifying the choice of agents, the multiplication of labels tends to increase the noise provided by each of the quality signals and deteriorate confidence. Economic agents have less interest in benefiting from a generic label but are looking for less demanding labeling at a lower cost. The whole system can therefore play in a counterproductive way, each actor minimizing the intrinsic effort provided. As the number of labels grows, the information asymmetry grows and end investors may therefore turn away from labeled products. Only regulator can counter this trend.

Keywords: Responsible Investing, Labels, Green Finance

JEL Classification: M14, G28

Suggested Citation

Crifo, Patricia and Durand, Rodolphe and Gond, Jean-Pascal, The Role of Labels in Green Finance: Construction and Regulation of a Label Market in France (September 10, 2020). Revue d'economie financiere N 138, 2020-2, Forthcoming, HEC Paris Research Paper No. SPE-2020-1399, Available at SSRN: https://ssrn.com/abstract=3698156 or http://dx.doi.org/10.2139/ssrn.3698156

Patricia Crifo (Contact Author)

Ecole Polytechnique, Palaiseau - Department of Economics ( email )

Route de Saclay
Palaiseau, 91120
France

CREST - ENSAE ( email )

France

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Rodolphe Durand

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Jean-Pascal Gond

Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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