101. What needs to change for green funds to be truly green
- Author:
- Jan Fichtner, Robin Jaspert, and Johannes Petry
- Publication Date:
- 03-2023
- Content Type:
- Policy Brief
- Institution:
- Danish Institute for International Studies (DIIS)
- Abstract:
- Green investment funds are growing rapidly. However, their impact on climate change mitigation and sustainability remains unclear. Recent research has identified key shortcomings that need to be addressed in order to reduce greenwashing and make these funds truly green. Green finance is playing an ever more prominent role in recent years. Environmental, social and governance (ESG) funds, which constitute a key pillar of green finance, saw record inflows of hundreds of billions of US-dollars in recent years, primarily by retail investors. Essentially, these ‘green’ funds are integrating environmental, social and governance criteria, such as greenhouse gas emissions, labour rights and gender diversity into their investment strategy. They claim to invest less in the stocks of firms that are highly polluting or have bad governance practices, and instead buy the shares of corporations that appear to be more sustainable. In industry and policy debates, ESG funds are often cited as advancing the promotion of sustainability and helping to address climate change. However, the ESG concept, its underlying criteria, and its potential effects are highly controversial. Many critics see ESG primarily as ‘window dressing’, with no significant positive impact – either for the environment or for investors and employees.
- Topic:
- Climate Change, Environment, Oil, Gas, Capitalism, Sustainability, and Minerals
- Political Geography:
- Global Focus