A new study from the London School of Econonics (LSE) highlights that to tackle the challenges of climate change, more investment needs to be mobilised in low-carbon technologies and capital assets.
According to a new paper from LSE Grantham Research Institute on Climate Change and the Environment, the shift towards a greener energy sector should act as a policy model for other sectors.
The research found that firms producing green goods and services tend to have lower asset turnover than other firms, perhaps reflecting both more recent capital investments and higher investment costs.
However, when studying the energy sector, firms with higher green revenues on average have higher profitability, and that this is also associated with better stock market performance..
The research argues that policy support can correct market failures and harness the ability for the private sector to pursue a cost effective low-carbon transition while delivering public goods.
It also highlights the importance of the signing of the Paris Agreement, saying that financial markets have responded positively, suggesting that strengthening climate policy signals and reducing regulatory uncertainty can help to open up and drive investments into new markets for green goods and services.
However, the report makes it clear that the Paris Agreement has not triggered investors to divest substantially from fossil fuel firms and therefore additional policies are likely needed to establish clear incentives for decarbonisation.
The report reccommends that we need to learn from the energy sector experience. It says comprehensive policy packages should be implemented that target the decarbonisation of key sectors in order to trigger shifts in technologies and investments towards carbon neutrality in hard-to-decarbonise industries.
It also highlights that supporting financing costs for green investments and encouraging investment in new technologies along the supply chain will likely play an important role in ensuring 'going green' is economically viable.