The financial industry states that it can help discipline corporations that have destructive tendencies toward the environment, however, the practice seems to be proving otherwise.
Mostly, it depends on what people look at.
According to the 2020 sustainability report, the total value of sustainable investing assets managed to increase by 38% in the 2016-2018 period.
However, research published in the same year in the Global Environmental Change journal contradicts the financial market’s “go-green” attitude.
As Bert Scholtens, finance professor and study co-author stated, it’s highly doubtful that financial markets are able to discipline fraudulent and careless CEOs, and in most cases, the companies that are responsible for environmental catastrophes or health disasters often see no negative feedback from creditors, investors, or credit-rating agencies.
In the study, experts looked at a total of 98 health and environmental controversies that happened between 2010 and 2018. These included events like the controversial VW emission tests and the Exxon and Shell oil spill scandals.
After analyzing the responses from creditors and investors, the researchers came to the conclusion that the financial market generally had a lackluster response. Investors did raise their voice somewhat, while reactions from credit-rating agencies were basically insignificant.
On the other hand, there were some cases when the finance sector did make a few swift moves to punish companies for their negligence.
Following the Deepwater Horizon disaster in 2010, the BP energy company responsible for the catastrophe saw its stock shares and credit ratings fall dramatically.
Experts agree that the finance sector still needs time to fully understand what environmental sustainability means and how to incorporate it across the board both for credit-rating agencies and investors alike and that the entire market (along with corporations) might require more pressure and disciplinary measures from governments in the future.
