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ESG/Climate vs conventional indices: Their difference in climate premium

Katja Scherer and Bernd Scherer

Finance Research Letters, 2025, vol. 81, issue C

Abstract: Green finance will lower carbon emissions if it increases the capital costs of polluting firms. For this transition, substantial green capital is necessary. Climate Change and ESG indices play an essential role in this regard. They serve as ESG or climate investors’ benchmarks and can guide the required investment flows. However, what is the actual impact of these indices? Our paper shows that popular ESG/climate indices display statistically significant yet economically insufficient changes in capital costs relative to their respective parent indices. Without a sufficient discount on capital costs, these investments will not lead to the hoped-for changes in corporate investment projects.

Keywords: Green finance; SCC; Climate change; CoC; ESG; Impact investing; ESG indices (search for similar items in EconPapers)
JEL-codes: E44 G1 H23 O44 Q5 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006968

DOI: 10.1016/j.frl.2025.107436

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