Séminaire BSE – programme 4

Etienne Lepers

(OCDE)

What Drives Capital to Green Companies in Emerging Markets:
Evidence from Investment Funds

Leveraging on a detailed portfolio-level dataset of the largest 37 000 investment funds in the world, this paper explores the role of investment funds in financing green companies in Emerging Markets (EMs) and allocation drivers. First, the paper demonstrates that despite a boom in “sustainable” investing at the global level, companies involved in carbon solutions (renewable energy, transport and infrastructure), and particularly so in EMs, represent a very small fraction of reported “sustainable” investment. Second, fund-level and asset-level regressions highlight several important fund and country characteristics as drivers of green investments. Younger funds, retail investor funds, funds with domestic mandates, and sustainable funds are more likely to invest in green companies and respectively less likely to invest in fossil fuel companies. We demonstrate the importance for EM green companies to be included into EM benchmarks, while listed firms’ concentration of ownership is negatively associated with green investments. Greater green allocation in EMs is also associated with higher portfolio flows openness, and more economic freedom. In addition, several climate-related drivers such as exports in renewable manufacturing products or a country’s share in energy generation are also positively associated with higher allocation.

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