GREEN - Sustainable Finance and the Efficient Allocation of Capital - FDEF

This research aims to provide a framework for integrating sustainability metrics in the valuation and the risk assessment of listed and private financial assets

The project at a glance

Start date:

01 Sep 2022
Duration in months:

36
Funding:

FNR
Principal Investigator(s):

Roman Kräussl

About

Sustainable or responsible investing is widely known as the integration of environmental, social and governance (ESG) factors into investment processes and financial decision-making. However, it is not sufficient to look only at the highest ESG ratings to declare a company, an investment fund, or an infrastructure project as ‘green’ or ‘good’. The proposed research reported herein will help facilitate greater transparency in the sustainable finance market by understanding the differences between artificial and genuine concern for the environment. This research concerns the role of the financing decisions of households, corporations, and institutional investors, both public and private, in curbing firms’ policies that are adverse to the achievement of the 17 UN Sustainable Development Goals (SDGs). Analyzing fund performance, its underlying drivers, and the related implications of the fund structure is instrumental in revealing the drivers of the Luxembourg sustainable fund ecosystem’s competitiveness, too, and therefore in boosting its international competitive position as a financial marketplace. The suggested research aims at providing a framework for integrating sustainability metrics in the valuation and the risk assessment of listed and private assets. To achieve it, the project will rely not solely on standard data sources such as ESG ratings published by commercial databases that largely reflect company self-disclosed practices but will also use non-public data sets which do not rely on self-reported, potentially greenwashed data, and focus instead on machine learning techniques when analyzing the true green potential of a company, a fund, or an infrastructure project.