Welcome to the podcast that shares the views of high-level leaders in the European and global financial services industry.
Nicolas Mackel . – “Welcome to Shaping Finance, a podcast which offers a platform to high-level decision makers and shapers in international finance. My name is Nicholas Mackel, I’m the CEO of Luxembourg for Finance and the host of this podcast.
I’m very excited to be joined today by one of the pillars of sustainable finance for this episode, Bertrand Badré. Bertrand is the CEO and founder of Blue Like An Orange, an investment fund that aims to deliver market rate returns while making an impact. And we will learn more about this fund later in this episode.
Before launching this project, Bertrand has had an illustrious career spanning both public and private sectors with roles in France’s civil service that took him to the highest levels when he was advising President Chirac on development issues. And in the private sector, Bertrand spent time with major banks like Societe Generale and Credit Agricole. More recently, Bertrand served as Director General and Chief Financial Officer of the World Bank Group. In this role, he co-authored a report titled From Billions to Trillions, which is widely regarded as a key publication in the realm of sustainable finance. He is also the author of two books on how finance should be leveraged in order to help change the world for the better.
Bertrand, welcome to Shaping Finance, our podcast.
Bertrand Badré. – “Bonjour Nicolas.
Your books read like a true call to action. In one of them called Can Finance Save the World? You state that when controlled and used intelligently, finance can accomplish great things. Across all your different writings, what would you say is your central thesis and your main message?
BB: “Well, it’s fairly straight forward. I think we’ve been through a major crisis 10 years ago. We made some decisions to patch up the system at that time, including raising ratios for banks for instance, but we’ve never really discussed what would come next. So, we had an attempt in 2015, you mentioned my report from Billions to Trillions, it was part of that effort. We agreed on Climate in Paris. We agreed on sustainable development goals in New York, we agreed on financing for development in Addis. So, basically and technically, we agreed to a kind of ambitious roadmap of the 21st century targeting an inclusive, resilient and sustainable growth model.
The fact that was the purpose of my first book is that we never really discussed the underlying financial matters that were requested to get there. So, we agreed on the objectives, not on the means to get there. And if we fast forward a little bit, we arrive to 2019, early 2020s, and that’s when I started to think about that new book, even before the COVID. And I say, ‘Well, we want to change the world. And we have not been serious about it because we’ve not made that much progress. We are talking a lot. We are committing a lot, but is there real change?’ And then COVID arrives. Of course, COVID is not a crisis of capitalism, globalisation, everything we’ve heard at the beginning. I mean, there’ve been pandemics over the years, all over the place but COVID reveals the fault lines that we have not addressed previously. And so, we’ve discussed a lot in number of countries about the world after. And so here again, we say, ‘Yes, we want to change the world.’ Never disagreeing, let’s make it work.
My point is that if we are to be serious this time, we really need to do the hard work, meaning opening the hood, take our tools and really start working on the engine and redesign what’s wrong in the engine that cannot lead us to this sustainable resilient and inclusive model that we are all, in theory, expecting.
Yes, you make your point very clearly that while we have drawn lessons from the global financial crisis by defining a new regulatory framework for financial services, we have reinforced the financial system, but we have not rethought or reformed it properly.
So, what lessons can we or should we draw from the current crisis and how can we take advantage of this current crisis to reform financial services?
“Well, it’s always difficult to use words like profit or take advantage, etc. because I’ve tried and the number of people that have said, ‘Can’t say that, it’s not good to expect a world crisis to solve a problem.’ But the reality is that you rarely change things in peaceful times and it’s really when you have a crisis that you have a chance to do the hard stuff. And I think this is really what I have in mind. Given the amount of money and the amount of brain cells we are burning these days to move to the next stage, it’s going to be better to look forward, not backward. I mean we have to look to the future, not to the past. So, make sure that the money that is spent goes in the right direction and put us on appropriate and sustainable paths.
So that’s really the main message, and the lessons from this crisis, and actually it’s a terrible negative lesson, this crisis is a global crisis, there can’t be a more global, the pandemic is hitting every country on earth. And so, you were expecting, and I was expecting because maybe with my past with the World Bank, to have a global coordinated response to the crisis and we’ve seen almost nothing. And that’s very, very depressing.
At the beginning of the crisis, the World Bank, the UN and many international organisations, estimated that we needed two to three trillion to help support the emerging and developing world. And what did we get? A temporary relief on that service from the first G20 this spring, another one last week. So, in total, a few billions or a few dozens of billions so we are nowhere. In the middle of all these, the US moved away from WHO for instance, pressure on WTO. So, I hope we will have a revival of this multilateralism that we’ve not seen and that’s a real issue because global answer is requested for a sanitary crisis, but it’s also requested for climate and environment, cyber, a number of things which are really, truly global threats, needs to be addressed globally.
And while criticizing the way financial services have been used, you also described them as a powerful force that should be leveraged for the good of humanity. If we take a step back, aren’t financial services core functions to facilitate economic development, that is banks and funds providing finances to create new factories or build infrastructure? Have we come to the stage where economic growth objectives are not enough and financial services should also aim to provide a superior value?
“Well, I think that’s a very ambitious question. I think at the heart of it is my conviction that finance is a tool, which sometimes we tend to forget and as a tool, it needs to be controlled by the end and not the other way round. So, finance is really the tool that allows us to manage time and space. We can invest thinking 20 years down the road, we can invest thinking 6000 miles away. And that’s really extremely useful for human development; it’s absolutely critical.
The problem is that when finance is led by the idea, together in particular by the great economist Milton Friedman 50 years ago that the only objective is to maximize profit. It’s true throughout the economy, it’s even more true for finance. That leads to finance taking a too big a role in the economy. Interestingly, the moment in history where financial activities were at the highest point in the UK or US economy were 1929 and 2007. I don’t think it’s totally anecdotal. So, I think we have to keep finance at its pace, use it as much as we can, but really keep control. I like to quote Saint Teresa of Avila. She was not an economist, but she said, ‘Money is like the devil’s dung, but it makes very good manure.’ And I think it’s really the same that money is a great servant and a poor master. So, we really have to reign in finance and make it work for common good or common interest and as you say, for superior values today.
That’s why without harnessing the power of finance, there is little hope that we can get on the roadmap that we agreed in 2015, the sustainable development goals of the Paris Climate Event. It’s not going to be a natural choice so we have to work a little bit on both the norms and the market pressure to lead economy where we want it to go.
The crisis has also shown that globalisation has become an easy topic for critics. While it certainly has had its drawbacks, the positives seem to outweigh the negatives. If we want to use financial services to build back better, we can’t do it each in our own backyard. We need to deploy financial services from where they are available to where they are needed. In this way, globalisation and financial services are very much intertwined. And what is your take on this?
“Well, I think it’s absolutely essential. When I was at the World Bank, I visited a number of countries to discuss their needs, etc. and immediately comes to people’s mind okay, let’s build hard infrastructure like roads, ports, cities, etc. Then comes the social infrastructure: education and health. And then I say, ‘Well, but without a financial infrastructure, you have a problem.’ So, you need to provide the capacity for people to save, to borrow, to really fortify this economy. So, I think finance is absolutely essential. One French president once said, ‘Finance is the enemy.’ I don’t think it made any sense. I think finance is a critical tool that can do a lot of good if properly controlled. And that’s really where I think we have a real common interest to really shift gears and shift direction after the COVID crisis. We never had that much money, we never had that much institution that managed money, you know that in Luxembourg in particular. So, what can we do with that? How can we get in the right direction?
I don’t have anything against profit, I don’t have anything against capitalism. I just think that market economy and capitalism go where you tell them to go. If you don’t tell them anything, they go straight like water; they choose the easiest trajectory. If you constrain them, they will just adapt them and if the market is telling people, ‘Okay, we don’t want this, this and this. We prefer you do this, this and this.’ They will go in that direction and if the norms and standards follow, then you can really use this amazing tool that market economies for the greater good.
Sometimes you need to channel them as you rightly say, because what we have seen is that sustainable finance has been thrust into the limelight but market penetration remains fairly low. In your mind, what needs to be done more specifically in order to help sustainable finance really become mainstream? Are measures like the EU’s taxonomy and disclosure regulation helping to push in the right direction or are other incentives necessary? What measures would you call for?
“Well, I think what the EU is doing is one of the positive news of this crisis. It was not obvious six months ago that the EU first, will recover. Second, will unite. And third, will confirm its sustainable commitment. So, I think, again, it’s not easy, it’s not done. It’s very European so there are E-Caps. But at the end of the day, it’s moving in the right direction, both from a money perspective, the Green Recovery and the Green Deal are still alive as far as I know and second, from a normative perspective and everything which is being done in that direction is important, I mean the taxonomy, etc.
My concern is to make sure that we make this, without diluting it too much, a commercial proposal. And I don’t want this to be too complex, too difficult, too technocratic in a way. I’m a little nervous that a number of people, I live in the US and I see that the Americans feel that there is a good business there. And so, if all of them from the big guys like BlackRock or Bloomberg to the smaller ones, they want to have their piece of the cake. And I wouldn’t want to have the Americans taking over what we’ve done in Europe too fast. We are organizing things at their hand and basically be the decision-maker on what is right and what is wrong.
It’s very interesting to see a number of American people have bought a number of small European shops, which are working on extra financial rating, etc. So, I think Europe has a really important role to play in that matter. I think it’s absolutely important that we continue to focus. We are still very important from an economic trade and also savings perspective. We have the right to say, ‘This is how we want to use our money.’ And I think we have to push hard and support every effort in that direction because I think our effort is genuine and I think it’s important. It’s not just a kind of let’s put a little bit of painting on what we do. So, it’s a long way.
There will not be a ‘Grand Soir’, as we say in French, meaning another revolution. It’s a five, ten-year effort. And after that, I believe that there is a chance; it’s not done. I think the jury is out. So today we are the crossroads where people expect things to be better, better meaning greener, more resilient, more sustainable, and more inclusive. But there is also a growing thesis that because of the crisis, capitalism might become harder. I think one of the French minister said, ‘What is the world after? It’s before, but worse.’ So, I don’t know. So that’s why whatever Europe is doing, and Luxembourg and others, is important to maintain the direction, to keep the compass rightly aligned.
Bertrand, you have grown up, obviously in Europe, you’ve started your career there, but you have moved over to Washington, DC, where you have lived now for a couple of years working first for the World Bank and now, while you have launched your project of your investment fund. You have thus been in a wonderful position to observe how sustainable finance has grown in these two jurisdictions, that each is on a continental scale: The EU on one side and the US on the other side.
From our point of view, it seems like the EU has taken on the leading role in this, but what is happening in the US because I’m very often told that nevertheless, if one looks beyond the rhetoric of the federal level, there is still a lot happening, especially on the municipal level, the state level, but in particular, the corporate level and the investment level. Is that really the case? And how does it compare to Europe?
“If you focus on climate, that’s absolutely true. I think you have the federal rhetoric and the local reality and that is true, I’ve written a lot around this. But if you speak on unsustainable finance, I think Europe has started earlier, in particular, they have a number of players: Luxembourg is one, France is another one, the Nordics are another one, the Benelux is another one, Germany. You have a lot of people who are genuinely motivated by these issues and for many, many, many years; it’s not new. It was still at the margin though, but there was real work done. And I think there was an acceleration for the past few years, definitely with the symbol of the Green Deal and the new directive on impact, etc. So that’s really moving in the right direction whereas in the US, it’s somewhat different.
I don’t see a kind of a cohesive model or genuine momentum behind it. So, you have players making their case, etc so I don’t want to say it’s black or white. My nervousness is the fact that the US, and again, a very simplistic, are seeing this as a business opportunity. Some being very genuine, some being less ingenuous. And again, they might take over the whole system and the way they have influenced the accounting standards, the way they have influenced the rating approach etc, might influence the evaluation or the assessment of, as I said, what is right or what is wrong. And I think it’s a sovereignty issue for Europe. You wouldn’t want in five or ten years down the road that the US will control what is right and what is wrong in Europe. You don’t want them to say, ‘Oh, this company is doing right because of our own standards.’
So, I think we have to keep pushing. For me, it’s a strategic issue. We add an edge, it’s reduced but we still have this. Within the Eurozone in particular, we are lucky enough to have a central bank which is pushing hard on these topics and I’ve been working with Christine Lagarde in Washington. I know she is very sincere on this and she’s pushing on this. So, we have the central banks, we have big pension funds. We are very active players. I mean, you’ve done a tremendous change in Luxembourg, not to flatter you, but that’s one of the elements that are changing things. We have big asset managers in France in particular, so we have also the pieces of the puzzle to make a sustainable finance a hard component of finance going forward. And it’s not just for Europe, I think we have a responsibility with the rest of the world.
I often made the case that after Brexit, people were fighting to get any pieces they could get out of London. So, everybody sent a delegate to London and saying, ‘Come to Paris,’ ‘Come to Dublin,’ ‘Come to Amsterdam,’ ‘Come to Luxembourg,’ ‘Come to Frankfurt,’ come wherever. I would make the case that the Eurozone as a whole should really think, but what is a financial place in the 21st century? What do we need to be a place which attracts people? I don’t want to be a copycat of London, we never do that but we can be the place where you discuss sustainable finance, where you discuss public/private corporation, where you discuss climate transition, demographic transition, and so on and so forth. And more importantly, how to finance the emerging and developing economies at scale. So, we have a lot that we can do, we have all the elements. And I think that’s a moment where we should unite and design something together.
Obviously yes and I think that Europe also has very well understood that this is not about market share, certainly not with the US. This is about all of us working together to achieve an objective and that is and can only be the objectives of the Paris Agreement. And you in this have not only limited yourself to talking the talk, you have actually taken real action by setting up a fund aiming to create impact. Blue Like An Orange, this name is drawn from a poem by Paul Eluard, and you follow quite a unique investment philosophy. What can you tell us about this fund and why did you actually choose to set it up in Luxembourg?
“Well, so first of all, Blue Like An Orange is taken out of poem which I think was written in 1929, I don’t know whether it’s a coincidence or not, I think it’s interesting enough to be mentioned. So, the idea was really based on my experience, I’ve explored most corners of finance throughout my career. And so, I made the decision with my partners to create Blue Like An Orange. There were a few principles, the first one was no trade-off between performance and impact because I think if you enter into that conversation, within two days regulation, you can’t discuss with insurers or pension. They have their official duties and they come into that conversation. So, you have to be very clear that you target risk based performance.
Second, we wanted to partner with a public institution. So, we have a partnership agreement, a working agreement, with an internet American development bank, which is very interesting and I think a first of its kind. And third, we have been supported by a number of individuals which think that this in a very innovative way to finance sustainable development, individuals like Paul Polman, then CEO of Unilever for instance. Emmanuel Faber was the CEO of Danone and many others. So, these guys have put their own money and their reputation behind us.
And so is the idea was to say, ‘Okay, in today’s world, you have trillions going into negative yield products. Most EU bonds today are yielding negative rates. Does it make sense for the savers, for the pension? No.’ It might be good for the government but let’s face it, that’s not ideal. Whereas you have amazing needs in emerging and developing economies where no money is going or not enough. And that’s where sustainability will be reached at the global level or not. I mean, climate, we do a lot of things in Europe and that’s great, but at the end of the day, we have different climate in Latin America and Africa and Asia and so on and so forth. So, I think there is this kind of capital allocation issues I wanted to be part of the solution.
So why Luxembourg? There are many reasons. One of our initial partner was already established in Luxembourg and told me that this is not the old image of Luxembourg, I don’t need to say too much about that. But Luxembourg has really shifted for real into a place where you have all the instruments to build up this type of fund. They are committed to the stock exchange, the regulators, etc., are committed to make Luxembourg one of the needle points of sustainable finance. So, I felt comfortable. I know sometimes I’m being asked, ‘Are you sure?’ I say, ‘Yes.’ I think you’ve chosen the right paths and I’m very happy to confirm that I feel comfortable in Luxembourg doing that and I think you have to pursue it. This is really a key differentiator for Luxembourg and a very different one from the one that sometimes we enjoy in the past.
And I hope we will continue to make you feel comfortable in Luxembourg, you’re certainly more than welcome. Now, before we conclude, let me get to the last question. Obviously, somebody like you who has himself written two books, most recently one, the French title of which is Voulons-nous (sérieusement) changer le monde? And the other one translated into English as well was Can Finance Save the World? Both of which are extremely pleasant reads, but do you have time to read yourself besides writing your own books? And if so, which books have you recently read and would like to recommend to our audience?
“I used to read in planes, less so now but I still continue to read a lot; fiction and nonfiction. So, I mentioned a number of books which are referenced my books, the one you mentioned. Prosperity from Colin Mayer, The Future of Capitalism from Paul Collier for instance. And there are others, The Third Pillar by Raghuram Rajan. These are economic books, serious books. I also read over the summer a very interesting book called the Pursuit of Power, which is a history of Europe between 1815 and 1914, which shows the tremendous changes that have happened throughout the continent. And it’s a nice way to take a relative position with the changes we are facing today. We always think that it’s unknown or if it’s unprecedented, etc. To a certain extent, it’s true. But when you see the way Europe has changed in the 19th century, early 20th century, that was also unprecedented. The industrial revolution, etc., was something different. So yes, I’m reading a lot.
And I read also an amazing book which I’m putting in my book, which is from Marguerite Yourcenar, a Belgian but buried in America. Actually, I visited the tomb in the cemetery in Maine, actually. It was a hard search, I spent two hours to find her tomb in the cemetery, but I have an immense respect for the tomb and as a writer. And it’s Mémoires d’Hadrien. I don’t know, what’s the English title. And it’s very interesting because one of the quote I’m making is that Hadrian, the Roman emperor, is an aging emperor reflecting on his life. And he says, ‘How long will I protect Rome from the barbarians outside and the slaves under us. The people that we ask to respect us from far are to serve us from below.’ And as I think it’s a very interesting question for today.
Of course, we don’t call them barbarians and slaves, but that’s the same issue. Can we protect ourselves? Does it make sense to protect ourselves with walls? And it’s not just an image, we know there are walls and the question of inequality which is central to our society. We don’t call them slaves but there is this idea, there is a growing disconnect between the upper class and the lower class. And so, literature is very often a great way to better understand what’s going on around us.”
NM: “Bertrand, thank you very much for this fascinating discussion and for sharing your insights on how to advance the sustainable finance agenda. This is a topic that we will certainly be reverting to over the course of the next episodes of our podcast. Thank you also to our listeners who have tuned in again. In the next episode, I’ll be joined by Klaus Regling, managing director of the European Stability Mechanism. Given the current situation in our economies, I am sure we will have a lively and enlightening discussion.
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