Episode 6: Credit Substitution in Sustainable Finance: An Achilles Heel?

Alperen Gözlügöl and Tom Gosling discuss the role that credit substitution plays in sustainable finance. One theory of change in sustainable finance is that directing credit allocation away from dirty firms and towards clean firms can cause the former to shrink and the latter to grow. In this interview, they discuss the ways in which credit substitution can cause this to break down. Putting pressure on bank credit can simply cause a shift to private credit. Differences in sustainable finance regulation across territories can result in shifts in financing and business activities. And even within regions, inconsistent sustainable finance regulation across different subsections of finance can create opportunities for credit substitution. Without a high level of consistency across and within regions and a holistic approach to regulation, credit substitution has significant potential to undermine sustainable finance goals. 

Read the paper: Credit Substitution in Sustainable Finance: An Achilles Heel?