COP26 Seminar Series: Green investment and private capital

Since 1995, the net total assets of US funds incorporating Environmental, Social and Governance Factors has increased more than 400%. This has been a common trend in many countries. In this seminar we will focus on issues in connection to sustainable finance and private green investments and their role for protecting the environment. We will first explore the finance channel through which investors have an influence on corporate decision making, regarding pollution abatement and decarbonisation ('greener production'). We will present the theoretical equilibrium pricing of shares for firms with different environmental standards (the "Green Capital Asset Pricing Model"), together with evidence from green mutual funds. We will then analyse the firms’ incentives (through the capital market) in reducing pollution. In this context we also explore the role of the government, in particular the effect of pollution taxes and abatement subsidies. We will also investigate which types of corporations are more likely to be environmentally responsible and engage in pollution abatement and the reasons behind their decisions. We will conclude by assessing whether markets alone can provide environmental protection or if government intervention would be needed.