Towards a Green Techno-Economic Paradigm - The implications of EUs strategy to finance a sustainable growth on industry dynamics from a neo-Schumpeterian perspective

Abstract

The consequences of climate change are becoming more and more evident. Environmental shocks in terms of massive forest fires, ferocious cyclones and droughts have become more frequent leading to mass migrations and business disruptions. It has now been declared that we have reached a tipping point and that further global warming is inevitable. Rather than preventing anthropogenic global warming, attention has shifted towards mitigating how much the temperature will rise. These consequences of climate change significantly impact the financial system. To mitigate the risks of climate change, the European Union have launched a strategy which aims to align the financial system with a low-carbon economy by the implementation of hard laws to incentivize private capital flows towards sustainable investments. These hard laws will significantly impact the current industry dynamics. What was once a company’s core competitive advantages may be transformed into core rigidities. This research aims to act as a source of insight for organizations who are indecisive in what way they should take going forward and how they should tackle the increasingly prevalent sustainability agenda. This is done by answering the question what implications the EU strategy on financing a sustainable growth will have on industry dynamics. This research has been conducted based on a mixed method approach using both a quantitative event study and qualitative semi-structured interviews. The event study aims to determine the impact of a successful Paris Agreement on companies which due to their operating industry make them inherently sensitive towards international environmental policies. The semistructured interviews have been conducted with global experts within the fields of sustainability, sustainable finance and risk management. Additionally, to get a holistic perspective of the issue in question, interviews with global industry leaders and policy makers have been conducted. The results from the event study, interviews with experts, industry leaders and policy makers’ show evidence that we are currently on the verge of a new green techno-economic paradigm. However, a transition towards such a paradigm is hindered by the interconnectedness and interdependence of the current economic system as well as the current dynamics of the relative cost structure. A transition towards a green techno-economic paradigm has the potential to onset a creative destruction of current industries in terms of displacing incumbents, stranding assets and hampering poverty eradication. This research concludes that the EUs strategy to finance a sustainable growth will have implications on the industry dynamics in terms of catalyzing such a transition while simultaneously mitigating the risk of creative destruction. Additionally, the EUs strategy on financing a sustainable growth aims to strengthen the competitiveness of European firms in the long run by establishing first mover advantages within the field of sustainability.