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Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms

Author

Listed:
  • Samuel M. Hartzmark
  • Kelly Shue

Abstract

We develop a new measure of impact elasticity: the change in a firm's environmental impact due to a change in its cost of capital. We find that reducing green firms' financing costs leads to minimal impact changes, while increasing brown firms' financing costs causes significant negative impact changes. Thus, sustainable investing strategies that shift capital from brown to green firms contain a counterproductive channel that makes brown firms more brown without making green firms more green. A mistaken focus on percentage reductions in emissions rewards already-green firms for trivial reductions in emissions and gives brown firms weak incentives to improve.

Suggested Citation

  • Samuel M. Hartzmark & Kelly Shue, 2026. "Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms," NBER Working Papers 35519, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35519
    Note: AP CF EEE
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G4 - Financial Economics - - Behavioral Finance
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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