Work

Sustainable finance versus environmental policy: Does greenwashing justify a taxonomy for sustainable investments?

Year: 2024

Type: article

Abstract: Our paper analyzes whether a planner should design a taxonomy for sustainable investment products when conventional tools for environmental regulation can also be used to address externalities arising from firm production. We first show that the private market provision of ESG funds marketed to retail investors involves greenwashing, so that a mandatory taxonomy is necessary to generate real effects of sustainable finance. However, the introduction of such a taxonomy can only improve welfare, on top of optimally chosen environmental regulation, if financial frictions constrain socially valuable economic activity. Otherwise, environmental policy alone is sufficient to optimally address externalities.

Source: Journal of Financial Economics

DOI: 10.1016/j.jfineco.2024.103954

Authors: Roman Inderst, Marcus M. Opp

Institutions: Goethe University Frankfurt, Centre for Economic Policy Research, Stockholm School of Economics, European Corporate Governance Institute

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Responsible consumption and production

Open Access status: hybrid

Estimated APC paid: $4,250