“The reason is that there is virtually no causal link between the use of green financial instruments and the use of funds for green purposes in companies or the state budget,” says Marcel Thum, Director of Ifo Dresden. Thus, green finance may not have the positive qualities that investors want.
However, private investors can actively participate in the decision-making processes of companies, either in person or through their fund representatives, in order to initiate a real shift in production towards more sustainable development. “In doing so, however, they need to be prepared to accept a loss of revenue because a greener corporate policy usually comes at the expense of earnings,” adds Thum.
Companies that issue green stocks will not become more sustainable just by doing so. When the portfolio is assembled from companies operating in an environmentally responsible manner, it does not yet lead to actual total economic production. “If you invest in green financial assets, it will make your portfolio greener, but it won’t change the emissions of the entire 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 amount of green spending previously defined in the federal budget. Thus, traditional bonds will be replaced by green bonds: “Green government bonds will not provide the federal budget with additional resources for sustainable change,” emphasizes the ESMT chairman. Jörg Rocholl. Thus, if private investors buy green government bonds, there can be no direct impact on climate protection.
Banks and mutual funds offer green stocks, government bonds and portfolios designed to support the transition to a more sustainable economy.
The authors call for sustainability efforts to focus on the policy regulatory framework rather than private engagement. For example, emissions can be significantly reduced through an emissions trading scheme, thus achieving a viable adaptation path towards a CO2-neutral society.
Source: ifo Institute
Source: The Nordic Page