Excluding high-emitting companies from sustainable funds is counterproductive
ACADEMIC BLOG
Many of the most popular sustainable investment strategies involve building a portfolio of low-emission ‘green’ firms while underweighting or excluding high-emission so-called ‘brown’ firms. A key goal of many sustainable investors and asset managers is to lower the cost of financing for green firms and raise it for brown firms. With enough time and money, the thinking goes, this strategy will incentivise all firms, green and brown, to improve their environmental impact.
Our research shows that the dominant sustainable investing strategy may actually be counterproductive.
Rather than incentivising heavy polluters to cut back, such an approach may cause them to pollute more. When brown firms are punished with a…
