Climate change and global finance at the crossroads Policy challenges, politico-economic dynamics, and sustainable transformation

Humanity is facing a millennium challenge: the transformation of state, industry, and society towards zero CO2 emissions. This goal can only be achieved if the necessary financial resources are made available. The financial sector, however, is struggling to steer financial flows towards sustainable investments. It is therefore crucial for public authorities and civil society to create incentive structures and regulatory corridors to effectively motivate the financial industry to strengthen their efforts toward climate change mitigation.

The project therefore develops an interdisciplinary and multi-method analytical framework appropriate for studying the connections between the financial sector and climate change. Besides evaluating internal financial market dynamics, it will also guide the analysis of the responsiveness of financial actors to regulations, climate/fiscal policy, monetary policy, and civil society demands. It will also be used to examine the interplay and reflexivity of each of these areas with and among one another. The aim of the project is to develop policy recommendations (policy mixes) on ways to accelerate the transition to a low carbon financial system.

The project aims to deliver four main outcomes:

• In-depth theoretical and empirical insights on the political governance of the financial sector;
• It will foster urgently needed research capacity and capability building in the field of climate finance and climate change mitigation, bringing together a wide range of political, economic, and sociological perspectives to the benefit of the research community at large;
• It will establish and consolidate communication structures (Policy Innovation Lab, Stakeholder Dialogues and others) that facilitate dialogue between academic and non-academic actors from the financial sector, policy-shaping communities, the real economy, and civil society.
• It will develop concrete policy recommendations mainly for policy makers in Germany but also for financial players and civil society actors.

According to existing research, civil society organizations and initiatives such as Friday for Future play an important role in the drive to accelerate decarbonization, among other things by ‘naming and shaming’ climate offenders, demanding stricter climate policies, and conveying values and norms in line with more sustainable practices. The project aims to systematize and examine channels of civil society influence on the financial market and sustainable finance. The IÖW is responsible for the analysis of interactions between civil society and climate finance actors as a potential driving force for the transition to sustainable finance.