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For Professional Clients and, in Switzerland, for Qualified Investors only. In Israel for Sophisticated Investors only. BNY Mellon Investments Switzerland GmbH is a financial services provider in Switzerland and is required to categorise clients, excluding financial intermediaries, in accordance with the Financial Services Act (FinSA). For the purposes of this communication, we have categorised you as a professional client. Professional clients are entitled to provide notification in writing if they wish to be re-categorised.
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IDEAS AND KNOWLEDGE TO INSPIRE YOUR INVESTMENTS THINKING
3 March 2022

Is ‘greenflation’ a real threat?

The standard view is that costly investment over the next 20–30 years will help avert an even costlier climate crisis in the second half of the twenty-first century. That’s probably right, but there’s a rosier world view that suggests our investments up front may not be as costly as most think if vast spending on clean, technologically advanced capital has spill over effects to the rest of the economy. It’s not impossible that clean investment could boost productivity economy-wide, raising living standards and reducing overall inflationary pressure.

 

Even if green investment is costly, it’s not clear who will bear those costs over the longer term. It may be the consumer, if firms can pass costs on into prices. But if competitive forces prevent that, then firms and shareholders may have to shoulder some of the cost in the form of a lower return on capital, or workers in the form of lower real wages. Finally, taxpayers may share the burden too, if many of these investments have to be subsidised. In truth, those costs will probably be shared, so once again ‘greenflation’ doesn’t necessarily imply higher inflationary pressure, let alone actual inflation.

 

Global Economics and Investment Analysis team, BNY Mellon Investment Management.

 

Doc ID: 876600

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