[Kodos]

Green Investing Could Push Polluters to Emit More Greenhouse Gases | Yale Insights

Sounds like we need to incentivize rather than try to punish "brown" companies.

“When you punish brown firms, they become more short-termist,” she says. Ultimately, “they pollute more when they’re punished.” On the other hand, rewarding firms that are already green does little to improve their environmental impact. Most of the green firms favored by sustainable investors tend to be in the insurance, health care, and financial services industries. According to Shue, “green firms start with close-to-zero emissions by the nature of their business, and they are very unlikely candidates to develop new green technologies.”

She and Hartzmark reached this conclusion by studying emissions data from over three thousand large companies from 2002 to 2020. They divided firms into five different segments based on greenhouse gas emissions (adjusting for revenue, because larger companies generally emit more than smaller ones). Then, using historical data, they analyzed how the highest- and lowest-emitting groups responded to changes in their cost of capital—like those the sustainable investing movement seeks to bring about.

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Focusing too much on percentage reduction in emissions and too little on absolute emissions is a broader problem with sustainable investing, Shue argues. Brown firms that make small, hard-won percentage reductions are generally “still considered toxic assets that cannot be included in the portfolios of sustainable investment funds. And that is offering entirely the wrong incentives,” Shue says. “Instead, it motivates firms that are currently green to engage in trivial or greenwashing attempts to make themselves look even more green.”