An Institutional Framework for a Sustainable Eco-Transition and Financial Regulation

Abstract

This article argues that a consistent ecologic/economic transition (eco-transition) must be embedded into a process of institutional evolution. The institutional framework is the overarching organizational structure aiming for the viability of the mode of reproduction over a given period. Capitalism is a social organization that makes continuous intensive use of resources for large-scale economic accumulation. Such an organization, notwithstanding its advances in technology, innovation, and creativity, and the accumulation of material and cultural wealth, often evolves with systemic instabilities and crises that result in high social and economic costs. The latest example of this evolution is the accumulation of tensions and crises in recent decades that have led, with widespread financialization, to an unstable and uncertain environment, both ecologically and economically. This situation calls into question the sustainability of the current accumulation regime. This evolution also requires institutional change and collective action for sustainable transition solutions by reframing the behavior of markets in a socially consistent way. This article places the emphasis on financial regulation regarding the financial needs of the transition process. Financial regulation should aim at allowing markets to conceive and implement stable financing possibilities for long-term transformation that respects environmental, economic and social sustainability constraints.

Keywords:

• eco-transition
• financial regulation
• institutional evolution
• sustainable financing

JEL Classification Codes:

• E02
• G18
• Q58

Notes

1 In this article, we assume that ecological-environmental and economic issues should be treated together in the transition process as the two sides of a same set of global and urgent concerns society has to deal with. We then use the term “eco-transition” to point to the overall transition process. The transition process is any structural transformation of the capitalist mode of reproduction, i.e. the regime of accumulation of financial/monetary wealth at a world scale that mainly relies on the efficiency of the private profit-seeking individual decisions and actions. From this perspective, it is worth noting that the eco-transition might be regarded as an alternative regime of (re)production of society that would be resting on the expansion of societal welfare in a collectively sustainable and viable way. In a capitalist (monetary) economy, this would require an alternative approach to the organization of markets and financial operations since the latter is the key to any effective economic action.

2 In the last decades, the SDGs process seems to be slowed down by the growing global instabilities, whether it is the Russian-Ukrainian war, tensions over energy and food resources or latent conflicts between different countries and regions under the weight of the persistent economic recession/stagnation since the 2007–2009 crisis.

3 The Paris Climate Conference is officially known as the 21st Conference of the Parties (or “COP21”).

4 NGFS (n.d.) , the network of central banks and supervisors, https://www.ngfs.net/en) and the Climate Financial Risk Forum (CFRF, established in 2019), brings together senior financial sector representatives to share their experiences in managing climate-related risks and opportunities. https://www.cgfi.ac.uk/cfrf/

5 Habermas (1988, 61) states that in an advanced-capitalist economy: “the collective-capitalist interest in system maintenance is in competition, on the one hand, with the contradictory interests of the individual capital groupings and, on the other, with the generalizable interests, oriented to use values, of various population groups. The crisis cycle, distributed over time and defused of its social consequences, is replaced by inflation and a permanent crisis in public finances.”

Additional information

Notes on contributors

Faruk Ülgen

Faruk Ülgen is Professor of Economics, Center of Research in Economics of Grenoble (CREG), University Grenoble Alpes, Grenoble, France.

Lyubov Klapkiv

Lyubov Klapkiv is Associate Professor of Economics, Department of Insurance and Investment, Maria Curie-Skłodowska University in Lublin, Poland.