Green Finance Makes Only a Limited Contribution to Climate Protection

Green financial investments have far less impact than desired on corporate and government investments. This is the conclusion of a joint analysis by the Dresden branch of ifo Institute for Economic Research, the Leibniz Institute for Financial Research SAFE and ESMT Berlin. “The reason is that there is virtually no causal link between green financing instruments and the use of the funds for green purposes in companies or the state budget,” says Marcel Thum, director of ifo Dresden. Thus green finance does not necessarily have the positive characteristics that investors hope for.

However, private investors can become actively involved in corporate decision-making processes, either personally or through their fund representatives, to initiate an actual change in production toward greater sustainability. “In doing so, however, they must be prepared to accept a loss of returns, because a greener corporate policy usually comes at the expense of earnings,” adds Thum.

Companies that issue green shares do not become more sustainable simply by doing so. According to the authors, when a portfolio is assembled from companies that operate in an environmentally responsible manner, it does not yet lead to an actual change in overall economic production. “If you invest in green financial assets, it makes your portfolio greener, but it does not change the emissions of the overall economy,” says Jan Pieter Krahnen, SAFE Director and one of the authors.

Similarly, green government bonds allow the federal government to issue bonds up to the the amount of green spending previously identified in the federal budget. Thus, conventional bonds are replaced by green bonds: “Green government bonds do not provide the federal budget with additional funds for sustainable transformation,” emphasizes ESMT president Jörg Rocholl. If private investors buy green government bonds, there can therefore be no direct impact on climate protection.

Banks and mutual funds offer green stocks, government bonds, and portfolios, which are intended to support the transformation of the economy toward greater sustainability.

The authors call for sustainability efforts to focus on a political regulatory framework rather than private engagement. For example, emissions can be significantly reduced with the help of an emissions trading system, so that a feasible adaptation path toward a CO₂-neutral society can be achieved.

Questions takes Prof. Dr. Marcel Thum, 0049 / 351 / 264 76 19; Thum@ifo.de.

Jennifer Reo
Public Relations Managerin
Address ESMT Berlin, Schlossplatz 1, 10178 Berlin, Germany
Mobile 0049 151 1457 1830
Email jennifer.reo@esmt.org
Website www.esmt.berlin