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Technical note : Solvency 2 facing the short-termism barrier

Le 12 mai 2021

Abstract

This technical note is a piece for contributing to the sustainable European stake in order to interlock financial systems with the objectives of the 2030 Agenda. It is intended to be used as a platform for discussion between risk management practitioners in the financial industry and the regulator, as well as operators and scholars who have already applied investigative methods in other disciplines.
Using a new approach, one aims to shed a light on what the morphology of randomness does to sustainable projects. It is argued that any sustainable finance project devised to fit the Sustainable Development Goals (SDGs) needs a paradigm shift in the morphology of randomness underlying financial risk modelling. It is argued that Leibniz's principle of continuity and Quetelet's theory of averaging are pervasive in Solvency II and that they ground a culture of risk in finance, acting as a mental model that prevents finance experts and practitioners from taking a long-term view, rendering Solvency II misaligned with the long-term targets of sustainability.
 

This technical note was written on May 10, 2021 by Christian Walter at the request of Af2i, the Association française des investisseurs institutionnels (French Association of Institutional Investors). This association strongly supports the goals of the 2030 Agenda for sustainable finance and wish to mainstream them into their professional and regulatory tools.

This technical note is based on academic papers all previously published in peer-reviewed journals or chapters of scientific books. The academic papers of Ch. Walter have been re-used and rearranged or updated, in the spirit of the question asked by the AF2i.

In order not to encumber the text with systematic references to C. Walter’s academic papers, the list of these papers is given in the Appendix. The other academic references mentioned in the technical note are listed at the end in the “References” section.
 
 

Document à télécharger : Af2i_Technical_Note_juin_2021-envoye_a_la_CE_12_mai_2021.pdf