Decarbonising Industry through a Financial Lens

Dr Pia Helbing
Lecturer in Accounting and Finance

The importance of climate finance is growing as the world seeks to adapt to the worsening effects of climate change. The Coalition for Environmentally Responsible Economies (CERES) suggests that a trillion US dollars a year must be invested to decarbonise the global economy.

Governments have limited ability to finance new projects, so firms turn to financial markets that play a critical role in developing the necessary industries, providing the bulk of the capital required for sustainable growth.

Most of this investment will need to be directed to the energy, transport and real estate sectors as part of a broad energy transition which is likely to span decades. That said, growing awareness of climate change is providing opportunities both environmentally and financially for green firms now.

We can better understand the renewable industry by looking at different types of firm – renewable (green) and non-renewable (grey) – and specifically the point at which they launch or ‘float’ on a stock market. This is also known as an initial public offering (IPO). It’s a pivotal point for growth and development, raising capital and gaining investors.

Both green and grey types of firms need to raise capital and many fund their growth by raising new equity capital in the stock market. My research, with colleagues from the University of Otago in New Zealand, investigates green and grey firms that file for an IPO. These insights further the understanding of how the growth and development of renewable industries can be facilitated.

Using a unique dataset of 284 energy and transport firms from eight European countries (UK, France, Germany, Spain, Italy, Scandinavia) between 2001-2017, we examined green and grey IPOs in terms of their ownership characteristics, the probability of their withdrawal from the IPO and their performance following floatation.

We define a green firm as having a majority of their operations (as measured by revenues) focused on renewable, greenhouse gas (GHG) neutral or reducing methods, technologies and associate enabling ‘green’ services and technologies.

This includes renewable energies, carbon-neutral buildings, building materials, electrification of transport and enabling technologies such as Smart Grid and Smart Grid Edge Technologies.

What we found


  • Green IPO firms are marginally less likely to withdraw, indicating a positive market sentiment toward them. The appetite is there for a greener future.


  • There is more venture capital involvement for green firms. Surprisingly, green IPOs are more often backed by private equity as well. Although you could argue that smart money is going to these firms.
  • Inside owners retain higher levels of stake in green firms which we attribute as an investment quality signal, whereas the impression is formed that insiders are eager to exit grey ones.

Post-IPO performance

  • Green firms relatively underperform post-IPO. However, they can be markedly underpriced, perhaps to offset their lack of green credentials. And it’s important to note that this effect of underperformance for green IPO firms is weakening over time. Also, in terms of survival, grey IPO firms are likely to be sold more quickly suggesting that insiders want to exit.

Has the global pandemic affected renewable and non-renewable IPO firms differently?

In short, yes. We’ve seen an unprecedented disruption in share prices and demand for fossil fuel technologies due to Covid-19. Demand for fossil fuels is lessened due to reduced travel, while on the supply side an oil price war is rampaging. Grey IPO firms have been more severely impacted by the Covid-19 crisis.

The uncertainty spawning from the coronavirus, Brexit and a poor economic outlook is likely to weigh on the IPO market for the remainder of the year. Overall, the results indicate a poor long term outlook for grey IPO firms.

So what next?

Ongoing and ever-strengthening policy to reduce emissions creates a positive outlook and investment horizon for green firms. On the other hand, grey firms face a bleak and uncertain future as a result of this.

Overall, despite poor return performance across the sample period in our study, it appears that the sentiment toward green firms is changing for the better.

However, to improve returns for green IPO firms a number of things need to happen. There needs to be stronger regulating supporting renewables, a higher number of responsible investors and a better incorporation of non-monetary Environmental, Social, and Governance (ESG) concepts. The returns to society as a whole depend on it.

Find out more

Cleverley, F., Diaz-Rainey, I. (both University of Otago, New Zealand), Helbing, P. Green versus grey initial public offerings: Ownership, withdrawal and post IPO performance.

A copy of the paper is available on request