The digitization of our society, the fight against climate change and the preservation of the environment have transformed the market. According to the Grand View Research Institute, the smart city market reached $ 568 billion in 20131. Based on IoT, this economy is expected to continue to grow dramatically. Still according to Grand View Research, in 2020 the smart city would weigh $ 1.4 trillion and $ 2.57 trillion in 20252. However, could this “techno-ecological” enthusiasm not fall into financial speculation and know the same fate as the internet bubble in the years 1990/2000?
Furthermore, the prospect of new markets in the field of IoT and the environment has encouraged companies to innovate and communities to invest in the city of tomorrow. For the International Data Corporation (IDC), nearly $ 80 billion spent in 2018 on implementing smart city strategies; this is expected to reach $ 135 billion by 20213. Both China and the United States cover more than half of these strategic expenditures3. But will these investments be sufficient to cover the needs of energy transition? Probably not.
Is the Smart City correlated with finance?
As a matter of fact, energy transition involves enormous financial resources to enable companies to find sustainable, reliable and collective solutions. Smart city projects need private investors, a “green finance”! Economists Abdeldjellil Bouzidi, Alain Grandjean and Mireille Martini in their study “Financial Regulation and Climate Emergency” created in 2017 defend this idea: “It is vital for our economies to quickly reconcile financing methods with climate objectives. (…) It is necessary and urgent to reinvest the prudential field to ensure the financing of the green economy and the fight against global warming, by including favorable macroeconomic criteria for the environment”4.
It is in this context that the European Commission has just announced on 8 March 2018 its sustainable finance plan. The latter takes into account the environmental criteria for the different investments. Good bodes for the companies developing in the smart city, a necessity for the vice-chairman of the commission, Valdis Dombrovskis: “The gap between the need for climate finance and the current offer amounts to 179 billion euros per year. This sum cannot be offset by public finances alone; it requires the participation of the private financial sector.”5.
Towards a transformation of the financial world?
Yet, while it is important to redirect investors towards sustainable projects like smart cities, it is necessary to control and regulate this “green finance” at the risk of obtaining an irrational market. Thus, the EU Action Plan to finance sustainable growth wants to transform financial players through a series of measures: “to oblige financial actors to take environmental issues into account in their investment policies, by defining constraints and incentives”; “to define a ‘common language of sustainable finance’ in order to classify financial products according to climatic, environmental and social criteria”; “the creation of a European standard for green financial products”; “the amendment of the CRA Directive to take into account long-term issues and sustainability”5.
The question, however, is whether or not these measures will succeed in controlling the financial market. If this is not the case, we will have to find another solution to the crucial economic and environmental issues.
1Grand View Research, Contenu conçu et proposé par Enedis : https://lemde.fr/2N499Ix
2Grand View Research, « Smart Cities Market Size Worth $2.57 Trillion By 2025”, February 2018 : https://bit.ly/2OQ9lJs
3IDC, « Investments in Technologies Enabling Smart Cities Initiatives Are Forecast to Reach $80 Billion in 2018 », February 2018 : https://bit.ly/2HGMexu
4Abdeldjellil Bouzidi, Alain Grandjean et Mireille Martini : « Régulation financière et urgence climatique : Pour des normes prudentielles et comptables plus vertes », juin 2017 : https://bit.ly/2tkkk31
5RéseauDurable : « Quand l’Union Européenne favorise l’investissement dans l’énergie propre », mars 2018 : https://bit.ly/2C2S0uv
