Green Financial Intermediation

What Does INTERACT Investigate?
INTERACT analyzes the entire impact chain of sustainable financial flows — from investor demand and financing mechanisms to measurable climate effects. The goal is to gain a better understanding of the channels through which the financial sector actually contributes to the transformation toward sustainability, and where significant gaps still remain.

Is the Financial Sector’s Current Engagement Sufficient?

The project findings suggest that substantial action is still needed. In particular, it remains unclear which mechanisms are most effective in channeling capital into sustainable investments. This is precisely where the project team’s research begins.

 

Financial Literacy and ESG Ratings as Key Levers

What Role Do Private Investors Play?

One key finding is that many households are still largely unfamiliar with sustainable financial products. In many cases, people lack the basic knowledge required to incorporate sustainability goals into their investment decisions. Financial literacy — especially with regard to sustainable investments — is therefore a crucial lever.

At the same time, the research shows that reliable information strongly influences investment behavior. ESG ratings can encourage sustainable investments. However, when these ratings differ substantially from one another, trust declines, along with investors’ willingness to invest.


Green Bonds: Effective, but with Limits

How Does Capital Reach Sustainable Projects?

Green bonds play an important role in this context. They encourage institutional investors to engage in sustainable investments and incentivize banks to issue loans with positive climate effects.

However, their impact remains limited. Positive effects are observed mainly among companies that are already relatively sustainable. For carbon-intensive firms, these instruments are currently insufficient. More targeted approaches are therefore needed to advance the transformation on a broader scale.


Regulation Between Impact and Costs

What Role Does Regulation Play?

Regulatory instruments such as the EU taxonomy and sustainability reporting requirements are intended to steer capital flows. However, the project findings show that their actual impact remains inconclusive so far.

At the same time, reporting obligations generate considerable costs — especially for small and medium-sized enterprises, including indirect costs arising through supply chains. These costs are only justified if they genuinely lead to more sustainable investment. Further evaluation and adjustment are therefore necessary.


Balancing Stability and Further Development

What Does This Mean for Policymakers?

The central challenge is to strike the right balance: regulations need to continue evolving, while market participants also require stable and reliable framework conditions. Planning certainty is particularly important for long-term investments.

In addition, the findings underscore the importance of financial literacy. Sustainable transformation can only succeed if investors possess the information and skills needed to make well-informed decisions.