Sunday 21 November 2021
In the end, it is legislation that decides
Green financial products do not help the climate
From Laura Eßlinger
Many banks and fund companies now advertise with green bonds, stocks and portfolios – and more and more people are investing in sustainable financial products. However, anyone who hopes that the associated corporations will operate more environmentally friendly as a result will be disappointed.
Anyone who hopes to strongly promote climate protection with green financial investments is apparently doing so in vain. Such investments help nature and the environment little – at least that is what a joint analysis by the Ifo Institute, the Berlin University of Applied Sciences ESMT and the Leibniz Institute for Financial Market Research SAFE says.
Many banks and fund companies now advertise with green bonds, stocks and portfolios. However, according to the researchers, buying green titles alone does not mean that the corporations involved are more environmentally friendly. This also does not change overall economic production.
“Investors pay for the feeling of doing something good. But they don’t,” says Jan Pieter Krahnen, director of the Frankfurt Leibniz Institute for Financial Market Research and one of the authors of the study, about “Capital”. Because what the companies do with the money from bonds sold, for example, is not specified. As with tax revenue, the amounts are not earmarked, so they do not have to be spent on environmentally friendly technologies or machines. “They finance the entire package of a company, not just the green areas of it,” said Krahnen.
In general, the criteria as to which financial products are considered “green” and which are not, are rather vague. Since spring there has been an EU disclosure regulation that divides products into different sustainability categories. That is a good approach, says Krahnen, but we still have to “clarify much more precisely what ‘green’ actually means”. The researchers focused primarily on passive investment products. This includes ETFs, but also securities that fund companies put together into supposedly “green” packages.
Accordingly, even green government bonds do not necessarily have the effects investors hope for. For example, the total number of government bonds is limited. The federal government can therefore only spend it in the amount in which it has made green expenditures in the federal budget. So it is replacing conventional bonds with green bonds, but no additional funds flow into the budget to implement the climate change.
Krahnen says: “The idea of investors that they are doing something green is wrong. In the end, it is the legislation that decides on climate policy requirements, not the financial market.”
According to the analysis, investors really only have the option of becoming active themselves. Only big investors would have real power. Banks and fund companies, for example, could exert influence on a company through the supervisory board – and put pressure on a company to become environmentally friendly. “Many funds avoid that, also because of liability issues,” said Krahnen. Private investors, on the other hand, would first have to join forces to form fund companies, i.e. become active investors. Only then could they use the respective committees to encourage companies to invest greener.
“But then it must be clear to them that they are losing profits,” believes Krahnen. “A greener alignment of the company usually depresses earnings.” The researchers clearly see politics on the train – and propose to start with emissions trading, for example, in order to cap the emission of climate-damaging carbon dioxide. Krahnen says: “Our instrument of choice would be to orient the certificate trade globally and to limit the number of certificates.” But because the prices for fuel would then rise, politicians shouldn’t dare to go there for the time being.
This article is at first Capital appeared.