Does sustainable investing deprive unsustainable firms of fresh capital?

This paper examines the sustainability characteristics of listed firms that raise fresh capital by issuing stocks or bonds. Issuance, i.e. the primary market, should be of paramount importance to sustainable investors since this is where the demand for and supply of capital meet, contrary to the secondary market where ownership of existing stocks and bonds is merely exchanged between investors. We find no evidence that fresh capital is flowing more towards sustainable than to unsustainable firms. The sustainability profile of equity issuers is generally similar to the broad market, while debt issuers even tend to have a below-average sustainability profile. Thus, unsustainable firms appear to have no problems in obtaining funding in public markets. Our results suggest that sustainable investing has not been able to deprive unsustainable firms from fresh capital. However, they do not disprove that sustainable investing may have prevented such firms from raising even more capital, nor that further mainstreaming of sustainable investing may lead to more noticeable impact on capital flows.