Counterproductive sustainable investing: The impact elasticity of brown and green firms
BibTeX
@article{hartzmark2023counterproductive,
title={Counterproductive sustainable investing: The impact elasticity of brown and green firms},
author={Hartzmark, Samuel M and Shue, Kelly},
journal={Available at SSRN},
year={2023}
}
Abstract
We develop a new measure of impact elasticity, defined as a firm’s change in environmental impact due to a change in its cost of capital. We show empirically that a reduction in financing costs for firms that are already green leads to small improvements in impact at best. In contrast, increasing financing costs for brown firms leads to large negative changes in firm impact. Thus, sustainable investing that directs capital away from brown firms and toward green firms may be counterproductive, in that it makes brown firms more brown without making green firms more green. We further show that brown firms face very weak incentives to become more green. Due to a mistaken focus on percentage reductions in emissions, the sustainable investing movement primarily rewards green firms for economically trivial reductions in their already low levels of emissions.
Notes and Excerpts
They give the following example:
- Travelers Insurance is a very green company.
- Martin Marietta Materials is very brown.
- So naively, you might want to invest in TI
- But MMM cut emissions significantly by investing in improved cement tech. (Bigger impact than getting TI to 0 emissions.)
- So actually maybe you should invest in brown companies which can become more green.