TY - JOUR
T1 - Promoting sustainable investment through financial architecture reform
AU - Triggs, Adam
N1 - Publisher Copyright:
© The Author(s) 2023. Published by Oxford University Press.
PY - 2023
Y1 - 2023
N2 - The global financial architecture is struggling to facilitate the sustainable investment needed to address climate change. Some argue that if the Basel III global capital rules treated environmentally friendly assets as being safer forms of capital, banks would be incentivized to hold more of these assets on their balance sheets and extend more green debt, promoting sustainable investment.This paper explores the possible impacts of this reform by combining firm-level environmental, social, and governance (ESG) data with a global general equilibrium model. It finds that the reform would result in a significant reallocation of capital, goods, and services across sectors and economies. It finds that while the reform could significantly increase investment, the investment is not necessarily sustainable and not all countries benefit from cooperation.The paper identifies a range of challenges that need to be overcome for these results to hold, including the reliability of ESG data, inconsistencies in taxonomies and methodologies, and further analysis confirming whether green firms are indeed safer borrowers.The paper argues that the G20 is well placed to address these challenges and outlines an agenda to achieve it.
AB - The global financial architecture is struggling to facilitate the sustainable investment needed to address climate change. Some argue that if the Basel III global capital rules treated environmentally friendly assets as being safer forms of capital, banks would be incentivized to hold more of these assets on their balance sheets and extend more green debt, promoting sustainable investment.This paper explores the possible impacts of this reform by combining firm-level environmental, social, and governance (ESG) data with a global general equilibrium model. It finds that the reform would result in a significant reallocation of capital, goods, and services across sectors and economies. It finds that while the reform could significantly increase investment, the investment is not necessarily sustainable and not all countries benefit from cooperation.The paper identifies a range of challenges that need to be overcome for these results to hold, including the reliability of ESG data, inconsistencies in taxonomies and methodologies, and further analysis confirming whether green firms are indeed safer borrowers.The paper argues that the G20 is well placed to address these challenges and outlines an agenda to achieve it.
KW - computable general equilibrium models
KW - econometric modelling
KW - fiscal policy
KW - globalization
KW - international trade and finance
KW - monetary policy
UR - http://www.scopus.com/inward/record.url?scp=85160043539&partnerID=8YFLogxK
U2 - 10.1093/oxrep/grad009
DO - 10.1093/oxrep/grad009
M3 - Article
SN - 0266-903X
VL - 39
SP - 267
EP - 282
JO - Oxford Review of Economic Policy
JF - Oxford Review of Economic Policy
IS - 2
ER -