Page 15 - Green Finance 2024

how the inherent uncertainties of green finance, such as technological risks and market

acceptance, add layers of complexity to financial risk assessment. These uncertainties

can lead to premiums that might deter short-term investors.

- Uncertain Financial Performance: Investors are often hesitant to commit to green

finance due to uncertainties about its financial performance, especially in the short term.

While long-term data suggest that green investments can be profitable, short-term returns
can be volatile and unpredictable. For example, Karpf and Mandel (2018) shows that the

performance of green investments and note that while they often yield lower returns in

the short term due to higher initial costs and market adaptation challenges, they tend to

outperform traditional investments over the long term due to lower operational costs and

increasing regulatory support.

- Regulatory concerns and transition risks: Green finance is heavily influenced by

government policies and regulations, which can change significantly over time.

Additionally, the transition to a low-carbon economy requires significant changes in

business practices across many industries, potentially leading to significant transition
risks. Investors may be concerned that future environmental regulations could negatively

impact the returns on current investments or that policy reversals could lead to stranded

assets. The changing in environmental policies and regulations can lead to substantial

financial risks for investors in green finance, emphasizing the need for stable and

predictable regulatory frameworks to foster confidence and investment in sustainable
projects (Battiston, Mandel, Monasterolo, Schütze, & Visentin, 2017). Besides,

transition risks represent a significant challenge for investors in green finance, as

industries adapting to low-carbon standards might face short-term financial hardships,

technological mismatches, or shifts in consumer behavior that can render existing assets

obsolete or less valuable.

On the other hand, from academic perspective, we have some prospects associated with

green finance, including:

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