The New Universe of Green Finance: From Self-Regulation to Multi-Polar Governance

Abstract

Green finance represents a wide-ranging challenge to the traditional constructs of financial law. New green instruments threaten to transform conventional investment practices (ethical investment), lending standards associated with project finance (environmental/social impact assessment), and accounting conventions (green/social reporting). To a large extent this process was inspired by civic forces: environmentally-socially conscious citizens, environmental groups and private financial institutions. International organisations such as the World Bank and UNEP added further impetus to this process. From a legal perspective the phenomenon of green finance reflected a highly patchy social process, constituted by segregated contractual instruments and uncoordinated organisational routines.

This chaotic picture of detached legal structures evolving in an uncoordinated fashion has started to change over the last years with the emergence of new global centres of governance. While these new normative centres are highly diverse in terms of their institutional structure and mode of operation, they are all dominated by non-state actors. The main goal of this article is to expose the contours of these emerging regulatory orders, highlighting the move from self governance to multi-polar governance. In particular, it explores the question of coordinating the regulators: what were the processes that shaped the allocation and redistribution of normative power at the global level. In that respect the article considers two theoretical puzzles. The first puzzle concerns the historical forces that shaped the contemporary governance structure; specifically, it focuses on the dominant role of non-state forces and the relatively minor role of state regulation. This division of normative powers seems to be changing however, with signs of increasing governmental intervention. To a large extent one can view the emergence and transformation of the field of green finance as the product of two conflicting narratives: neo-liberal capitalism and the emergence of globally oriented civic networks that highlighted the adverse social and environmental repercussions of the neo-liberal order. The second puzzle involves a different question: is the current normative structure, with its idiosyncratic distribution of normative powers, the most efficient one, in terms of achieving a more sustainable society? The paper will argue, in this context, that the contemporary governance structure, with its multiple layers, and private and public components, constitutes a regulatory ensemble whose synergistic capacities compensate for some of its evident shortcomings.

In answering these questions the paper takes the following path. First, it describes the various instruments that constitute the new field of green finance. It distinguishes between three fields of financial regulation: project finance, ethical-green investment, and environmental reporting. Project finance represents the supply side of the market, while green investment represents the demand side. Environmental reporting is part of the institutional framework that facilitates the work of the financial market. In each of these domains it explores the evolvement of new global centres of governance. The following section discusses the causal question: to what extent have the new centres been efficient in changing social practices? The last section examines the two puzzles described above.

Keywords: Green finance, ethical investment, environmental reporting, global financial law, voluntary instruments, self-regulation

JEL Classification: K32