ONLINE - Socially Responsible Finance: How to Optimize Impact?

14.04.2021 14:15 – 15:30

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR / ABSTRACT

We consider a general equilibrium productive economy with negative externalities. Investors seek to maximize their pecuniary and non-pecuniary returns, entrepreneurs profits. We show that a socially responsible fund is able to raise assets and improve social welfare iff: (i) it commits to finance only firms that cap their emissions and (ii) capital allocation is subject to frictions. If investors care about impact, the fund should prioritize investments in companies with acute negative externalities and facing strong capital search friction. It can amplify its impact by imposing restrictions on the suppliers that the firms it finances can use. Investing in sectors that pollute little under laissez-faire has no impact.

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