At a time when climate change is still seen by many as the most serious long‐​term threat facing humanity (even as the COVID-19 pandemic is foremost on our minds), leaders of the corporate and financial worlds are looking for ways to make their activities more “green.” Automakers are scrambling to shift production to all‐​electric vehicles and industrialists are looking for ways to reduce their corporate carbon footprints. So it’s no wonder that managers of mutual funds and bond portfolios are offering more sustainable equity and “green” bond funds. Sustainability‐​linked loans in the developing world are increasing rapidly.

If these trends continue and the fund managers are successful, we may someday look back at how free‐​market forces delivered improved worldwide environmental quality while multi‐​country environmental regulation seemed impossible to implement. We’ve gotten pretty good at doing things at the national, state, and local levels, but so far we haven’t found any viable solutions to the combined global effects of individual nations’ environmental use.

Consider BlackRock, the world’s largest fund manager, with some $7 trillion in various holdings. BlackRock recently announced that it will impose much stricter environmental and social standards on corporations whose shares it might consider owning. It’s also vacating investments in firms that produce coal or have large carbon footprints and expanding holdings in firms committed to fighting climate change and increasing diversity.

Along somewhat similar lines, the Wall Street Journal reports that sales of “green bonds,” which are sold to investors to fund renewable energy facilities and mass transit, rose by more than 20% last year. They are in such demand that investors are scrambling to buy them. In an effort to expand this market, the trading platform MarketAxess promised to plant five trees for every $1 million in these bonds traded. Based on last year’s $57 billion, that would yield more than 250,000 new trees.

As this unfolds, there is growing concern regarding the soft regulatory power being exerted by the nonprofit Sustainability Accounting Standards Board, which seeks to influence how corporations report social goal progress. Also, the Securities and Exchange Commission is raising questions about what qualifies an investment fund to be called “environmentally superior.” Then there is the perennial criticism of corporate social responsibility: that corporations should simply stick to their knitting and maximize shareholder value. Presumably, each day a firm’s management spends worrying about planting trees is one fewer day focused on improving products and cutting costs.

These are valid concerns. However, each one underestimates the ability of market forces to deliver what buyers will pay for and rush to bankruptcy those producers who do not. Historically, these sorts of concerns have been sorted out through a combination of give‐​and‐​take in markets and the evolution of rating services that inform investors. Committing to what consumers and investors care about doesn’t necessarily yield lower returns than does a narrow focus on products, service, and costs.

After all, if investors are truly willing to pay more for greener investments, the cost of capital will fall for the firms they favor, causing an expansion of, say, a popular tree‐​planting program or investment in the developing world. If buyers will pay more for green bonds, the cost of debt will fall for cities and states seeking to replace older infrastructure with cleaner technologies. And if these things begin to occur systematically, then we may one day see this market‐​driven environmental movement bear significant fruit.

This isn’t the time for more SEC regulation of green investments. Rather, it’s a time for independent rating organizations such as Moody, Fitch, and Standard & Poor to rise to the challenge and help verify promised outcomes, environmental and otherwise.

What we may be observing, finally, is a new day when free markets deliver cherished environmental outcomes that are proving to be exceedingly difficult for governments to achieve alone.