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Sustainable Finance in the New Geo-Political Era: A Difficult Balancing Act

Author

Listed:
  • Lorenzo Esposito

    (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore, Milano, Italy - Banca d’Italia, Milano, Italy)

  • Marta Cocco

    (DISCE, Università Cattolica del Sacro Cuore, Milano, Italy)

Abstract

The aim of this work is to assess how geopolitical tensions and risks can affect sustainable investment strategies and the approach to the transition that is dependent on a growing supply of critical raw materials. In particular, we analyze the effect that tensions in the US-China relation have on the US investment in renewables. Using the Electricity Installed Capacity Index, we show that an increase in tensions in the bilateral trade relations and, more generally, an increase in the uncertainty of the geopolitical context, can act as a stimulus for the renewable energy sector. Given the prudent strategy of the US financial institutions in funding green energy, this correlation is not much connected to better green investment yields but to the US governments attempts to decouple from China. It also shows that US trade policy will be used to help the development of US green technologies.

Suggested Citation

  • Lorenzo Esposito & Marta Cocco, 2025. "Sustainable Finance in the New Geo-Political Era: A Difficult Balancing Act," DISCE - Working Papers del Dipartimento di Politica Economica dipe0045, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie5:dipe0045
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    File URL: http://dipartimenti.unicatt.it/politica-economica-DIPE0045.pdf
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    More about this item

    Keywords

    critical raw materials; sustainable investment; geopolitical risks;
    All these keywords.

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • G2 - Financial Economics - - Financial Institutions and Services
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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