Projects: CFR3-TC

The Financial Geography of Green Finance Policy: Evaluating Policy Effectiveness across over 50 countries

In the past decade, over 390 finance policy initiatives aimed at greening the financial sector have been spearheaded by various public authorities around the world. So far, scholarship has offered insights into how traditional environmental policy such as carbon taxes, emission trading schemes, or low carbon R&D subsidies impact green financing, innovation, and financial performance. However, we still know surprisingly little about the impact of green finance policies on the real economy and the financial sector itself. In particular, we run major knowledge and policy deficits in managing climate risks in primary capital markets. Furthermore, we still have a limited understanding of the effectiveness of green finance measures and how they interact with other existing environmental policy regimes across countries; particularly how they might be undercut by subsidy regimes towards emissions-intensive industries that governments pursue in parallel.

We address this gap by conducting an in-depth mapping of green finance policies and traditional environmental policy instruments across more than 50 countries. We propose to quantitatively analyse the impact of extant green finance policies in shifting capital towards green solutions and away from emission-intensive activities. These objectives will be achieved via a three-pronged approach:

  • Analyzing the largest datasets on sustainable finance policy initiatives and instruments,
  • Interviewing NGFS members, and
  • Analyzing a comprehensive global dataset of syndicated loans, equity, and bond issuances.

Our research seeks to inform and enhance the capacity of central banks and financial supervisors to implement effective green capital market policies that are well-adapted to broader policy and subsidy regimes. In addition, we will discuss the implications of more stringent capital market regulation for just transition outcomes.

Cities as Fossil Fuel Investment Brokers

Using a global dataset of over 840,000 equity, bond and syndicated loan investment banking deals, we build the fossil fuel investment brokerage profile of financial centres worldwide between 2000 and 2018. We also study whether city-level fossil fuel divestment commitments and country level green banking policies impact the profile of fossil fuel financial centres over our study time period. We find that several financial centres shift their fossil fuel investment brokerage profiles substantially, including the asset classes which they are active in. However, we do not find any evidence that this is driven by city-level divestment commitments. We do find however that fossil fuel investment banking brokers situated in financial centres exposed to voluntary green banking policies reduce their fossil fuel financing. This is driven by foreign brokers whose behaviour signals an anticipation of forthcoming mandatory green finance policies.

In the Name of COVID-19: Is the ECB Fuelling the Climate Crisis?

We offer preliminary evidence drawing on a novel dataset of corporate bonds issued in the European energy sector since January 2020 in combination with the European Central Bank’s (ECB) purchases under the Pandemic Emergency Purchase Programme (PEPP) in response to COVID-19. We show that the likelihood of an European energy company bond to be bought as part of the ECB’s programme increases with the greenhouse gas (GHG) intensity of the bond issuing firm. We also find weaker evidence that the ECB’s PEPP portfolio during the pandemic is likely to become tilted towards companies with anti-climate lobbying activities and companies with less transparent greenhouse gas (GHG) emissions disclosure. Our findings imply that, at later stages of the COVID-19 recovery, an in-depth analysis maybe necessary to understand if and if yes, why the ECB fuelled the climate crisis.