An exposition of the gap between public sector and private sector participation in green finance

Abstract

Greening the environment cannot be achieved satisfactorily, considering that the private sector lags behind the public sector in participation levels. The purpose of this study was to determine the reasons behind the gap in green finance between the two sectors using numerically derived outcomes. Six-year data in the form of total shareholder returns, comprising capital gains and dividends paid from the largest banks in China, the USA, and Europe involved in financing fossil fuels, were extracted from Yahoo.com finance and Macrotrends public forums. Equity premiums were calculated from the total shareholder returns and risk-free rates. A 95% confidence interval was established to determine the lower and upper limits of the equity premiums. The resulting upper limits were used to project premiums that could attract the private sector by 2030. Equity premiums averaged 2.73%, 9.73%, and 4.31% for China, the USA, and Europe, respectively, indicating the substantial task in the USA of attracting the private sector compared to Europe and China. The projections of total shareholder returns showed the same patterns in equity premiums among China, the United States (USA), and Europe. To bridge the gap, the significant need for economic benefits for the private sector should ideally be addressed through green bonds, tailored to green financing projects that are earmarked for revenue generation.