Sustainable Finance in the New Geo-Political Era: A Difficult Balancing Act

The aim of this work is to assess how geopolitical tensions and risks can affect sustainable investment strategies and the approach to the transition that is dependent on a growing supply of critical raw materials. In particular, we analyze the effect that tensions in the US-China relation have on the US investment in renewables. Using the Electricity Installed Capacity Index, we show that an increase in tensions in the bilateral trade relations and, more generally, an increase in the uncertainty of the geopolitical context, can act as a stimulus for the renewable energy sector. Given the prudent strategy of the US financial institutions in funding green energy, this correlation is not much connected to better green investment yields but to the US governments attempts to decouple from China. It also shows that US trade policy will be used to help the development of US green technologies.