Private governance and sustainable finance

Abstract

The use of private environmental governance (PEG) represents a unique strategy designed to help generate political authority for sustainable financial practices. Several collaborations between financial firms and environmental non-governmental organizations, including the Carbon Disclosure Project, Investor Network on Climate Risk and Climate Disclosure Standards Board, have embraced PEG to improve the financial disclosure of climate change risks within financial markets. How does this strategy use sustainable financial practices in ways that generate authority? This paper argues that PEG helps deploy technical knowledge in ways that cultivate support among politically influential constituencies for the adoption of sustainable financial practices. To make this conclusion, the paper will borrow from Global Environmental Politics and International Political Economy research on the use of private governance as a mechanism that steers and coordinates behavior. This focus on private governance helps address an important gap within sustainable finance research on the link between technical practices that reduce environmental externalities and political authority.

Keywords:

• private governance
• NGOs
• climate risk

Acknowledgements

This research was supported by the Social Sciences and Humanities Research Council.

Notes

1. Climate change risks include: (1) physical impacts on companies caused by the changing environment; (2) regulatory impacts if governments implement policies that require companies to change their behavior in ways that mitigate or adapt to climate change; (3) legal impacts if a company is found negligent for ignoring climate change impacts that cost shareholders and (4) reputational impacts if consumers choose other firms based on a company's exposure to impacts (see Trucost 2009; Young, Suarez, and Gladman 2009).

2. The INCR's standards mostly focus on encouraging investors (i.e. end-users) to promote disclosure by preparers using standards developed by groups such as CDP and CDSB. But adoption rates and the success of investors in facilitating disclosure are evaluated and reformed using a similar reflexive process as the CDP and CDSB.

3. Although the CDP hosts the CDSB, its Board has the decision-making authority. It is composed of the CDP, Ceres, GHG Protocol, World Economic Forum, Climate Group, Climate Registry and the World Business Council for Sustainable Development.