Green Foreign Direct Investment is flowing far beyond renewables: a taxonomy-guided LLM analysis

Juan Alvarez Vilanova, Riccardo Crescenzi and Lee Mager

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Foreign direct investment (FDI) finances and diffuses the capital, skills and know-how needed for the low-carbon transition, yet ‘green FDI’ remains systematically under-measured. Sector proxies – typically renewable energy and waste remediation – miss green activities embedded within other industries, yielding a partial and geographically-biased picture. Here we combine Large Language Models with the EU Taxonomy for Sustainable Activities to classify investment projects against sector-specific green criteria. Applying this taxonomy-guided framework to 109,084 inward greenfield FDI projects into the European Union and the United Kingdom (2013– 2024), we identify 15.7% of FDI value as green – around twice the share captured by traditional measures. We show that sector metrics miss large volumes in manufacturing and services, and that beyond-energy green FDI is more strongly linked to extra-European investors, implying distinct geopolitical dependencies. Blinded human coding and robustness tests confirm high accuracy and reproducibility. Together, these results enable scalable monitoring of investment alignment with climate objectives.

Keywords: green FDI; EU taxonomy; large language models; greenfield investment; decarbonisation; green transition (search for similar items in EconPapers)
JEL-codes: C88 F21 Q55 Q56 (search for similar items in EconPapers)
Pages: 81 pages
Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:137671

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