Towards a finance that CARES (Capital Approach Resting on an Ecological-based Sustainability)

Jacques Richard, Rambaud Alexandre, 2015

Today’s sustainable finance mainly relies on the extension of a particular classical capital theory to extra-financial types of capital (in particular human and natural). We call (and justify it)this mainstream theory, the Fisherian-(falsified) Hicksian approach. After a critical analysis of this model, we claim that this way of conceptualising sustainable finance is finally unsustainable. At the same time, we also defend the idea that there is a convergence between ecological-based sustainability (which we can call by definition a genuine sustainability) and the extension of the traditional accounting framework to extra-financial types of capital.

Therefore, we propose to structure a sustainable finance from this perspective (which we call CARES, for Capital Approach Resting on Ecological-based Sustainability): after having defined how to operationalise and theorize such a sustainable accounting, thanks to the “Triple Depreciation Line” model (Rambaud & Richard, 2015), we use this model to re-define the notion of free cash-flows to make them “sustainable”. We finally discuss the manner they can be used for financing purposes.

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