Laura Grumann^1,*, Mara Madaleno¹ and Elisabete Vieira²

¹ Research Unit on Governance, Competitiveness and Public Policies (GOVCOPP), Department of Economics, Management, Industrial Engineering and Tourism, Universidade de Aveiro, Campus Universitário de Santiago, 3810-193, Aveiro, Portugal

² Research Unit GOVCOPP, Higher Institute of Accounting and Administration, Universidade de Aveiro, Rua Associação Humanitária dos Bombeiros de Aveiro, 3810-500, Aveiro, Portugal

* Correspondence:   Email: laura.grumann@ua.pt; Tel: +4917624320239

Abstract:    Recently, European regulation on sustainability preferences has made green finance a mainstream topic for retail investors. On the contrary, green innovation is largely discussed as bearing risks, and renewable energy projects are sometimes referred to as related to high risk. Our article aimed to shed light on retail investors’ risk exposure in green finance. In the literature review, we rarely found the retail investor’s risk perspective reflected, and green finance risk in terms of major capital loss was not explicitly stated as a research topic. We aimed to close this gap in the literature and apply a multiple case study approach with cases from the renewable energy sector to analyze the components that nurture green finance risk. For case description, we leveraged publicly available online information such as press articles, financial reporting, mandatory disclosure from the represented company, and pre-contractual information of the financial instruments marketed. Our findings suggest that green finance risk (GFR) is nurtured by risk components from the categories of financial instrument risk (FIR), investee company risk (ICR), and operational risk (OR) of renewable energy projects. The cross-case analysis identified red flags that might alert future investors. Additionally, we suggested measures to mitigate green finance risk and propose regulatory improvements. Our research marks a starting point for future quantitative and qualitative research.

Keywords: green finance; green innovation; green finance risk; retail investor; multiple case study

JEL Codes: C40, F36, G15

1. Introduction

The transition to a carbon-neutral European Union (EU) economy requires innovation in technology and huge financing efforts from the public and private sectors, increasing the relevance of and interest in green finance (Matviienko et al., 2022) (Sustainable Europe Investment Plan, European Green Deal Investment Plan, 2020). Also, a growing number of publications has been dedicated to green finance globally (Akomea-Frimpong et al., 2022; Debrah et al., 2023; Desalegn & Tangl, 2022). Our research focuses on green finance from the perspective of retail investors and within the context of EU jurisdiction with its specific regulation on financial markets, investor protection, disclosure, and sustainable investments. 

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