The impact of carbon neutrality on the investment performance: Evidence from the equity mutual funds in BRICS.

The promotion of carbon-neutral investments is among the primary constituents of developing a carbon-neutral economy. This is even more important for emerging economies that have constrained financial markets. In this paper, using monthly data between 2011 and 2019, we study 6519 actively managed mutual funds in BRICS after sorting them into black, brown, and green categories based on their investment holdings. Our comparative performance shows that green funds outperform their counterparts for the entire sample and within-country assessment. We also document the volatility and market timing ability of green funds, mainly absent in high emission funds. The results remained robust for various definitions of performance. Our findings also indicate Chinese green funds perform better than those of other countries. This is attributed to the multiple ecologically friendly economic policies that China has adopted over the years. Based on the results, we propose various interventions that could foster the adaptability of a carbon-neutral investment landscape.

Carbon neutrality, bank lending, and credit risk: Evidence from the Eurozone.

The development of a green financial intermediation channel is imperative to achieve zero-carbon economies. In this study, we assess the impact of carbon-neutral lending on the credit risk in the Eurozone. We employ quarterly data for a sample of 344 lending institutions of 19 member states spanning over ten years from 2011 to 2020. Using two specific credit risk measures, the findings show that the exposure to carbon-neutral lending is negatively related to the default risk. The results remain consistent for the various size sorts, depicting that regardless of the bank size, the impact of green financing on the credit risk is the same. We attribute the credit risk reduction to the lower volatility of the borrowers' earnings and cash flows emanating from their sustainable business model. As a consequence of lower credit risk, financial institutions can benefit from lower loan loss provisions and economic capital requirements. This incentive is vital to increase the carbon neutral credit and contribute towards pro-environmental goals.

COP21 Roadmap: Do innovation, financial development, and transportation infrastructure matter for environmental sustainability in China?

The purpose of the present study is to explain the long-run and causal effects of innovation, financial development, and transportation infrastructure on CO2 emissions using the combined cointegration and wavelet coherence approaches over the period from 1971 to 2018, while using economic growth as a control variable in the model. The outcomes of the Bayer-Hanck cointegration test show that there is an important cointegration equation among CO2 emissions, innovation, financial development, transportation infrastructure, and real GDP. Moreover, the findings from a wavelet power spectrum reveal that there is a significant vulnerability in innovation, financial development, transportation infrastructure, and CO2 emissions at different time frames and frequencies. Furthermore, the outcomes of wavelet coherence approach reveal that (i) Innovation is observed as a significant predictor of CO2 emissions over the period from 2007 to 2013; (ii) In the long run, there are negative correlations between CO2 emissions and financial development; (iii) Over the periods from 2000 to 2015, and from 1985 to 1989, transportation significantly causes CO2 emissions. Our findings have substantial policy implications that suggest there is a need to strengthen innovation and transportation infrastructure to achieve environmental sustainability targets.