2024/10/23 by Roman Inderst, Marcus M. Opp · 1 voice · 1 citation
Economics, Econometrics and Finance · Environmental Science · #Economic and Environmental Valuation #Housing Market and Economics #Sustainable Development and Environmental Policy
paper · doi:10.1016/j.jfineco.2024.103954
openalex publication_date 2024/10/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/15
Our paper analyzes whether a planner should design a taxonomy for sustainable investment products when conventional tools for environmental regulation can also be used to address externalities arising from firm production. We first show that the private market provision of ESG funds marketed to retail investors involves greenwashing , so that a mandatory taxonomy is necessary to generate real effects of sustainable finance . However, the introduction of such a taxonomy can only improve welfare, on top of optimally chosen environmental regulation, if financial frictions constrain socially valuable economic activity. Otherwise, environmental policy alone is sufficient to optimally address externalities.