The role of financing constraints and environmental policy on green investment

Hélia Costa, Lilas Demmou, Guido Franco and Stefan Lamp

Economics Letters, 2024, vol. 239, issue C

Abstract: Despite ambitious carbon reduction targets set by policymakers worldwide, current investments fall well short of the net-zero emissions scenario. This paper investigates the impact of financing constraints (FCs) on green investment among large, publicly listed firms across diverse sectors and countries. We find that FCs significantly reduce the propensity to undertake green investments by 2.5 percentage points. This result is even more pronounced in a difference-in-differences framework when focusing on the exogenous increase in financing costs resulting from the Great Financial Crisis of 2007/08. The study reveals further that the negative impact of FCs can be reduced by market-based environmental policies.

Keywords: Green investment; Financing constraints; CO2 emissions; Environmental policy stringency (search for similar items in EconPapers)
JEL-codes: D22 G32 Q52 Q58 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:239:y:2024:i:c:s0165176524002246

DOI: 10.1016/j.econlet.2024.111741

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