The contested IPE of green finance

Abstract

In this commentary article, we engage with the papers in the special issue to unpack the categories of ‘green’ and ‘finance’ to surface key concerns within IPE about different forms of power and governance which we suggest are key to assessing the ‘green turn’ in global finance: how it is currently constituted, on whose terms and for what purposes.

Introduction

Finance is the lubricant of the global economy: from enabling production, technology development and diffusion to the building of infrastructures, it makes possible critical elements of sustainability transitions while making some versions of such transitions more likely than others. Given the predominance of finance in the global political economy, it has unsurprisingly moved centre stage in policy and scholarly debates about environmental sustainability. As financial actors have taken up this central role, they have brought with them the infrastructures, methodologies and networks deployed to organise finance in other areas of the economy which reflect, in turn, a set of interests, values, ideas and ideologies about the appropriate role of finance in governing the global economy, and ‘green’ transitions in particular. These exercise a profound effect on emerging transition pathways, and upon the extent to which they can be considered either green or just. In this commentary article, we engage with the papers in the special issue to unpack the political economy of green finance. In doing so, we surface key concerns within IPE about different forms of power and governance which, we suggest, are key to assessing the ‘green turn’ in global finance: how it is currently constituted, on whose terms and for what purposes.

We welcome the move in this special issue towards a more global account of the ecologies of finance to appreciate not just its ecosystemic nature – by which we mean the links between forms of finance – but also the global nature of financial flows and the disruptions they cause, embedded as they are within global socio-ecological relations (Craig, 2017). The papers provide a timely provocation to consider which conceptual models, tools and theories might be adapted or refashioned for the purpose of better understanding and engaging with the IPE of green finance. Whilst the study of finance is a core tenet of IPE, mainstream IPE has neglected environmental concerns in general, and more ecological perspectives in particular, despite some important early and more recent interventions (Clapp and Helleiner, 2012; Hasselbalch and Kranke, 2024; Helker-Nygren and Katz-Rosene, 2024; Helleiner, 1996; Katz-Rosene and Paterson, 2018; Quastel, 2016; Salah and Ament, 2024; Stevis and Assetto, 2001; Svartzman and Althouse, 2022). Insights from ecological economics, political ecology and green political theory which explicitly the embed the economy within ecology have gained limited traction in IPE, in part perhaps because of the critique they imply of economic growth (Daly, 1996) which remains a given in mainstream IPE scholarship (Newell, 2024). The papers in this special issue nevertheless provide a bridge to these literatures which warrant further engagement by scholars of IPE.

In what follows, we engage with the contributions to this special issue to examine different forms of power and governance in the ‘green turn’ of global finance. The paper leverages the concept of ‘infrastructural power’ as an analytical lens, examining how this power is exercised between public and private actors and shapes both the definition of what counts as green and how finance is deployed in (un)equal and (non)green ways. This approach situates our analysis between a micro and systemic level critique, allowing us to get into the practices of financial power and search for leverage points to challenge the emerging shape of transition finance. This helps respond to Babic and Sharma’s call to mobilise critical IPE scholarship in a way that is both problem-driven and praxis-oriented (Babic and Sharma, 2023) in its engagement with the tensions and dilemmas that arise when financial and ecological systems encounter one another. We firstly centre infrastructural power to understand the political dynamics that structure the forms of finance deployed: their allocation and distribution and the nature of greening that they are able to bring about. Secondly, we explore how green finance has been moulded and accommodated to the routines, ideologies, practices and imperatives of financial capitalism. Thirdly, we turn to the practical politics of governing finance: the tools, spaces and networks through which green finance is currently governed and where scope exists for it to be governed differently. Fourthly, we address the question of who wins and loses from current configurations of green finance. Finally, we conclude with some thoughts on the perils and promises of green finance.

Power in green finance

The notion of infrastructural power, originally derived from Mann’s work and developed by other scholars (Braun, 2018; Braun and Koddenbrock, 2022; Mann, 1984, 2008; Weiss, 2006), helps describe the influence of and control over the infrastructural components of a political economy that shape the allocation and distribution of goods. Infrastructures here can be hard (roads, powerplants, digital infrastructures) or soft (models, professional networks, statistics). Initially, the idea of infrastructural power referred to a ‘broad tapestry’ of activities related to the state’s ability to exert control by ‘link(ing) up with civil society groups, to negotiate support for its projects, and to coordinate public-private resources to that end’ (Weiss, 2006: 168). This understanding remains highly relevant to green finance, but is increasingly combined with a ‘financial’ iteration of infrastructural power, given the increasing dependence of the state on infrastructure owned by financial actors which enhances the power of global finance to determine political-economic processes (Braun, 2018; Cooiman, 2023; Gabor and Sylla, 2023; Schindler et al., 2023). This builds on growing interest among scholars of finance in IPE in the forms of infrastructural power financial actors exercise in contemporary political economies (Braun and Koddenbrock, 2022; Folkers, 2024; Hall et al., 2023; Pinzur, 2021). ‘Green’ infrastructure and building the infrastructural networks that facilitate its development and rollout are central to the political dynamics of sustainability transitions. Actors and institutions who wield power through control of this infrastructure can determine the shape and the scale of collective responses to ecological crises.

Within this framework, however, we should not lose sight of the fact that the state remains primus inter pares: the centrifugal force for battles over competing futures (sustainable and otherwise), and the site and terrain of conflicts over governance. What Jessop (2008) would call ‘strategic selectivity’ on the part of the state between competing state goals and interests is key to making sense of this landscape and constitutes the central node in networks of infrastructural power and a key target of finance capital. Working through this framing of power helps to understand the connective tissue that holds these infrastructures together, as well as the scope to identify cracks and vulnerabilities that offer up leverage points which might enhance the prospects of more just transitions. Attention to infrastructural power enables a focus on the finer fabric of interconnectivity and the negotiations between actors, practices and materialities that define the everyday operations of the global economy (Gjesvik, 2023; Weiss, 2006).

Infrastructural power in green finance is distributed highly unequally, and currently occupies one small part of a complex ecosystem of finance. It operates across different spaces and jurisdictions of finance, and it is unequally distributed and unevenly (un)governed. This generates a series of divergencies between forms of finance deployed both between and within jurisdictions. This is brought out in the Special Issue by Chamberlain and Bernards explicitly locating their reading of the African Risk Insurance Capacity in the ‘hierarchical power relations exercised in and through the uneven development of the global financial system, expressed in the form of differential constraints on access to resources, exposure to financial volatility and ongoing extraction of value disproportionately penalizing actors in peripheral economies’ (Chamberlain and Bernards, 2024: 3). Likewise, Bogner and van der Zwan and van der Heide draw our attention to how the legal structure of green finance and the private initiatives that shape its evolution exhibit similar hierarchical relations (Bogner, 2024: 4; van der Zwan and van der Heide, 2024: 18). It is important then to identify the unequal distribution of power in finance’s entanglements with green infrastructures to assess whether and how current circuits of green capital may serve to entrench and reinforce inequalities and marginalisation while further reinforcing the social and political power of finance capital.

Consolidating control through green finance

Understanding the politics of green finance requires an engagement with the actors, drivers, and incentives which motivate investors, and the infrastructures through which these motivations are mediated and actualised. The extent to which finance is currently being ‘greened’ and ecologies financialised is unprecedented, and an historical account of its emergence reveals the ebbing and flowing of ideologies, the varieties of financial relations at play and the specific political settlements that have allowed green finance to emerge. The financialisation of environmental policy was neither inevitable nor unsurprising, but rather results from a historically specific confluence and configuration of actors, institutions and interests committed to reconciling the need for climate action with a finance-led regime of accumulation (Aglietta, 2000). This is drawn out in this Special Issue, for example, by Chamberlain and Bernards who show how ‘Climate and development objectives are increasingly seen as conjoined, and the mobilization of private finance is increasingly seen as central to both’ (Chamberlain and Bernards, 2024: 2).

Van der Zwan and van der Heide remind us of an earlier history of green finance dating back to the UNEP Finance Initiative in 1992, and then engagements with the insurance industry through to more contemporary concerns with the governance of the financial system, the role of key actors like central banks and the emergence of voluntary initiatives such as the Net Zero Insurance Alliance and Net Zero Banking Alliance (van der Zwan and van der Heide, 2024). These shifts are not just a product of institutional manoeuvers and the need to legitimate a role for finance capital in sustainability debates They are also part of an ideological shift. For example, there was a time when a more obvious solution to drought would have been state-led disaster relief, social protection, and adaptation planning. This has been increasingly displaced by a focus on external private-led ‘development capital’, a ‘self-financed timely exit from poverty’, as the UK’s former Department of International Development put it, whereby ‘higher premiums’ are sought to motivate disaster risk reduction: strategies which strengthen the leverage of investors and donors (Chamberlain and Bernards, 2024). These entanglements between state and private finance increasingly drive states to view environmental policy through the optic of private finance. This is exemplified by the move towards donors providing disaster risk finance being encouraged to ‘see like an insurer’ (Taylor, 2022). States increasingly rely on the tools and techniques developed by private financial investors such as risk quantification, climate bonds, credit guarantees, and green securitisation as core components of infrastructural power in green finance. While these technologies of governance are often treated as neutral and technical, in reality they impose limits upon the policy tools available to governments in the Global South which are more dependent on them by eroding the space for democratic choice or resistance in favour of identifying the optimal investment strategy.

Ideological impulses and preferences still need to be enacted, however. As Chamberlain and Bernards show, the fact that ‘Development interventions privilege the interests of finance capital doesn’t necessarily imply that they are driven by financial interests’ (p. 14) such that ‘the social power of finance operates largely indirectly’ (p. 15) since states make strategic selections to meet fiscal goals through private financial institutions and continue to legitimate this form of accumulation. This can also be seen in Cooiman’s paper, which demonstrates how de-risking practices across the EU subsume the notion of environmental ‘impact’ touted by public actors into a profit-led definition acceptable to the private institutions they work through (Cooiman, 2023: 15).

In this way strategic selectivity is expressed by the state through the law. The law is a key instrument and site of struggle over the future of green finance, and Bogner shows how it acts as a core part of the soft infrastructure facilitating investment and global capital flows (Bogner, 2024). Markets are ‘creatures of law’, and the law provides a key means through which capital and property are protected and responsibilities delimited, thus serving as a ‘protective layer’ for market facilitation (as opposed to its governance) (p. 8). This role is present in the development of legal norms within and between legal spaces which shape the properties of green finance through soft law practices and legal expertise (Bogner, 2024). But it also manifests itself through harder sanctions observable in investor agreements and dispute settlement mechanisms, which have provided opportunities for investors to threaten and contest more ambitious environmental action by states, around energy transitions, for example, (Tienhaara et al., 2022) or to punish and discipline countries ‘going too far’ as Colombia was perceived to have done in committing to leave reserves of oil in the ground. In IPE, such moves can be conceptualised as examples of ‘disciplinary neoliberalism’ or as a manifestation of the ‘new constitutionalism’ to enshrine and protect the rights of capital over states (Gill, 1998). The effect, as Bogner shows, is that private international law may act as a drag ‘on just and democratically legitimated climate action’ (p. 2) through the relegation of environmental objectives to voluntary or industry-led initiatives, while the infrastructure of international private law imposes ‘legal, political and financial constraints on de-carbonisation pathways’ (p. 2). The law will continue to be a key site in this broader battle over the appropriate freedoms afforded to finance capital. As Bogner shows, ‘On the one hand, green finance requires a strong legal and regulatory framework to promote investment in projects that can be legitimately considered as green. On the other, the logic of offshore financial centers lies precisely in the absence of such regulation’ (p. 12). Critical IPE can help shed light on the tensions and contradictions that this creates, often expressed as key strategic dilemmas for states seeking to operate simultaneously as an ‘environmental state’ and a ‘competition state’ (Cerny, 1995; Hausknost, 2020).

As Cooiman shows, green investment operates along chains of infrastructural power which bring together ‘market-based approaches to governance, including public, private and ‘borderline’ ones' (Cooiman, 2023: 2), while Van der Zwan and van der Heide treat transnational sustainable finance initiatives as soft infrastructures that determine the principles and practices of green finance through which powerful actors can exert network effects (van der Zwan and van der Heide, 2024). However, the papers also draw attention to the fact that this extension of power is not straightforward, but rather always contested and contingent on the political moments in which it occurs. In other words, the project of expanding and consolidating financial frontiers requires political work to shape the strategic selections of states. Chamberlain and Bernards draw on Hart’s work to show how ‘the conditions for global capital accumulation must be actively created and constantly reworked’ (2001: 650); a process the authors describe as ‘papering over contradictions of capitalist development’ (p. 3). Hence, we see new entanglements, deals and compromises between and within the state and financial institutions that take the form of what Cooiman calls ‘capital cum policy’.

The cumulative effect of these strategies of power is to shape dominant pathways to sustainability underpinned by a pervasive narrative about the necessity of private finance to meet transition goals and the requirements for public institutions to ‘crowd in’ private financial flows to transition infrastructures. This is reflected in how responsibilities, accountabilities, liabilities and risks get reallocated and fall disproportionately on the public side, while the profits and returns fall on the private (Gabor, 2021). The state moves from the lender of last resort (or capital insurers of last resort in the case of national treasuries) to guarantor of first resort, required to do what it takes to honour the assumed right of capital to make a profit whereby the state both de-risks investments and then absorbs the inevitable social and environmental costs and externalities generated by the projects it has helped to create (Folkers, 2024; Gabor and Sylla, 2023). Ambiguity and blurring of the roles and responsibilities of public and private institutions provide fertile terrain for forum-shopping between institutional venues and shapeshifting, creating uncertainties and surfacing new opportunities to (re)define what is public and what is private. We see this also in the shifting of the burden of financing and acting on climate change to those least responsible for it, while constructing infrastructures for generating rents for key clients. Whether catastrophe bonds, weather derivatives or crop insurance products, financial actors exercise what Paterson calls ‘triage’ (Paterson, 2001) by making decisions about who gets coverage and who does not, such that the viability of whole regions and communities can be determined by financial risk assessments. The papers in this special issue reveal both the hard and soft infrastructures which are engaged through networks of green finance. They show how brokers and financial intermediaries, ‘the market makers’, provide the connective tissue, tying together providers and recipients of finance to facilitate the flow of capital.

Governing finance: principles versus practice

For IPE scholars, the expansion of green finance raises questions about the appropriate governance of these financial flows as well as questions of strategy and intervention or leverage points which might be activated to govern them more effectively (Meadows, 1999). The papers in this Special Issue provide insight into the tools, spaces and networks through which green finance is currently being governed and where scope exists for it to be governed differently. Van der Zwan and van der Heide, for example, note how the transnational sustainable finance initiatives (TSFIs) operate as key networks through which green finance’s emerging practices and norms are negotiated, making them core to the political work of enabling and extending the flow of green finance. Both TSFIs and other forms of soft infrastructure create, encode, and disseminate the practices that codify investments, tools, and financial flows as green. They are part of a wider ecosystem of practices and networks that perform this function within green finance through standards, disclosures, (self) reporting and compliance. This ‘performative compliance’, a manifestation of broader audit culture (Power, 1997), is observable in the rise of ESG and the ‘pledges and partnerships’ culture visible in the ‘breakthroughs’, partnerships and alliances such as Glasgow Financial Alliance for Net Zero (GFANZ).

On the one hand, these governance innovations represent a significant step forward in building the infrastructure necessary to finance sustainability transitions. Regulation, harmonisation, and standardisation can reduce transaction costs for public and private-led green investments and facilitate the global diffusion of preferred ways of governing finance through specific metrics and criteria legible and amendable to how investors understand and engage with markets. Much of global finance is shaped through soft standards and norms and IPE scholarship has long paid attention to their capacity to determine outcomes (Golka, 2024; Langley, 2015; MacKenzie, 2005; Thistlethwaite, 2011) suggesting that some such initiatives could provide leverage points for productive engagement.

On the other hand, there is reason to doubt whether these soft practices provide the sort of governance needed to enable sustainability transitions. The ‘green’ standards and principles that define the green financial sector are often non-binding and malleable, reducing their ability to contain, let alone reverse, environmentally damaging financial flows. This can be seen in the case of the TSFIs, which act as a space in which sustainability is ‘performed’ without resetting corporate governance or liability which continues to protect unsustainable investments. Van der Zwan and van der Heide refer to the ‘performers’ that enact ‘performative compliance’: modes of governance which help to contain and obscure the tensions and contradictions between the stated aims and means of achieving many of these initiatives (p.5). The limits of such initiatives to deliver meaningful change become clear once greater ambition is demanded and the actors back off, such as with GFANZ (Glasgow Financial Alliance for Net Zero) where many financial institutions were reluctant to countenance stricter requirements to divest from fossil fuels (Reclaim Finance, 2023). Likewise, their often-fleeting nature is underscored by the fact the Net Zero Insurance Alliance was discontinued as of April 2024 and by the current flight of major banks from the Net Zero Banking Alliance. Within such initiatives, we see instead the deployment of deliberate ambiguity and obfuscation around the sources of finance and the metrics and standards against which their performance should be assessed.

Transnational finance initiatives in this space, rather like forms of transnational environmental governance that came before them (Bulkeley et al., 2014), reflect particular geographies, actors and their preferences, despite rhetorical claims to operate as truly globalised networks of voluntary governance. Van der Zwan and van der Heide show that more than one-third of all memberships of TFSIs are held by companies headquartered in either the US or the UK: two central nerve centres of the global financial system, and that behind transnational networks ‘there is a rather small group of large investors taking central positions’ (p. 17) within these formations. In the case of the TSFIs, the centrality of institutions from the Global North has implications for the effectiveness of these forms of governance since ‘it limits the potential of the global network to serve as an infrastructure for the diffusion of sustainable finance’ (p. 18) and is often disconnected from other key financial actors in China and India, for example. It is important then to parochialise finance. What is said to be a global phenomenon is often an expression of the political work of capital in the Lockean heartlands of the US and UK, rooted as Bogner shows in a ‘few, salient, sovereign jurisdictions and legal templates’. The principles of green finance are encoded via soft infrastructure driven by traditional jurisdictions of power in the Global North continuing an observed bias towards regulation for rather than of investment across areas the terrains of global finance (Newell, 2001) which, we propose, is likely to limit the effectiveness of these modes of governance.

Capitalising (on) crisis

The limits of soft practices as a means to govern green finance relate not just to their inability to alter or constrain private financial flows when in conflict with demands for short-term returns, but also their capacity to be exploited by the predatory instincts of global capital: efforts to both capitalise and capitalise upon the ecological crisis itself. Chamberlain and Bernards provide the example of the ‘Extreme Climate Facility’ – a form of ‘disaster capitalism’ enabled by the shock doctrine effect whereby crises-induced disorientation provides an opportune environment for powerful actors to create and exploit economic opportunities that might not otherwise be available to them (p. 6) (Klein, 2007). Here, they suggest, ‘development practice increasingly seeks to pose climate adaptation and other projects as investment frontiers for over-accumulated finance capital’. This finding resonates with studies of how climate harm is already providing opportunities for market actors to generate new rents globally, and how the prospect of future harms knowable through modelling is already serving as a pretext for further embedding finance in crisis responses (Felli, 2021).

Who then benefits from green finance? While green standards and ethics are of genuine interest to most institutions engaged in green finance, their fundamental orientation towards profit-maximisation and return on investment limits private finance’s capacity to focus primarily on sustainability goals at the required scale, let alone articulate the means by which poorer groups are meant to access green finance. Adaptation finance, in the case of the African Risk Capacity (ARC), provides relief only on the terms of financial investors, transforming the program into a form of financial statecraft in which African governments are required to undertake ‘capacity building interventions to be made during investment’ (Chamberlain and Bernards, 2024: 8). This process, they show, built the ARC into ‘an infrastructure for generating rents’ (Chamberlain and Bernards, 2024: 15). Crucially, this was not the intention of those involved in the programme’s design or delivery, but has rather emerged through the attempt to navigate the imperatives and networks through which private finance is organised. In this case, this has led to a failure of ARC’s intention to support African nations to adapt to the effects of climate change, an outcome replicated across a range of programmes and sectors.

Chamberlain and Bernards show how this process re-enforces the ‘hierarchical power relations exercised in and through the uneven development of the global financial system, expressed in the form of differential constraints on access to resources, exposure to financial volatility and ongoing extraction of value disproportionately penalizing actors in peripheral economies’ (p. 3). Which finance can be mobilised or redirected and by whom is dependent on context, the location of states in the global political economy and the degree of policy autonomy and developmental space they can wield (Wade, 2003). In some cases, such as Germany, its state development banks have assets that amount to up to 30% of state GDP (Guter-Sandu et al., 2024). The situation is quite different in many cash-starved economies in sub-Saharan Africa. This reduces the fiscal and policy space afforded to governments in the Global South, further entrenching reliance on global financial investment to meet ecological (as well as other) political objectives.

However, this comparison should not lead us to believe that states in the Global North currently possess the infrastructural power and autonomy required to finance the transition. Financing through private institutions in a long-term and sustainable manner requires significant public coordination and comes with significant macro-financial challenges. Guter-Sandu et al. (2024) draw attention to this. Using a critical macro-finance framework, they survey the institutional actors that dominate the EU’s balance sheet arrangements and assess the elasticity space they possess which could be used to meet the challenge of financing green transitions. They show how, while the EU does have significant balance sheet elasticity that could be used to increase the volume of finance for the transition, they possess limited infrastructural capacity to actively manage this expansion of financing in a way that makes long-term debt issuance sustainable, and allows for an orderly contraction (i.e., repayment of debt). They are, therefore, limited in their capacity to mobilise private green finance. This highlights the ecosystemic nature of green finance, and the challenge of grafting mechanisms to achieve just transitions on to pre-existing networks of financial governance. These networks are heavily weighted towards private finance profit-maximisation and lack the embeddedness in social and ecological imperatives required to force a green transition. States’ reliance on private finance to meet green objectives limits their capacity to meet these goals, while sustaining a focus on goals which are more easily financialised and bankable. Identifying the levers and mechanism that would create the political space to embed the infrastructure of macro-finance within a ‘big green state’ model should therefore be a key task of green IPE.

Sustaining finance or greening finance?

The current governance of green finance implies particular conceptions of ‘green’. Yet there are many shades of green: from the shallow greening of ecological modernisation – reconciling ecological crisis with the imperatives of liberal capitalism – through to more transformative visions of realigning the economy and ecology (Clapp and Dauvergne, 2011). The dominant institutional framing in green finance reflects and entrenches the former. The goal is to mobilise more finance for more technology, infrastructures, products, and consumers. This reflects a ‘plug and play’ approach to transitions: adopting new technologies and models of financing, but not challenging the mode of accumulation, production, consumption, nor the power relations within which they are embedded (Newell, 2021). For example, van de Zwan and van der Heide show that notions of sustainability often get reduced to ‘sustainability-related business risks’ (p. 4). Given their finding that sustainable finance continues to depend on the activities of actors associated with harmful financial and environmental practices, distinctions between ‘brown’ and ‘green’ finance start to look more precarious and explainable by combinations of incumbent power and the current organisation of circuits of capital. This again echoes Cooiman’s assertion that the definition of ‘impact’ in green finance is produced and defined by financial actors themselves to align with their profit motive. Hence, the unconditionality of BlueInvest’s lending and weak enforcement reflect the dependency of the Fund on venture capitalists. These limited notions of what counts as green are further embedded by elite forms of expertise across the spaces of green finance. For example, carbon markets have long benefited from high requirements of legal, economic, scientific and technical expertise to make public scrutiny of the quality and credibility of projects very difficult. Thickets of rules and barriers are constructed to protect contentious investments while minimising duties of care and liabilities.

Dominant framings of green finance also reproduce a limited understanding of transition. The almost exclusive focus on scale in contemporary discussions reduces the idea of transition to reaching a threshold volume of ‘green finance mobilised’. Yet green finance currently makes up a fraction of total financial investment, with international financial institutions, NGOs and activist sounding the alarm about the likelihood of green finance being scaled sufficiently to meet the challenges it seeks to address. For example, the Climate Policy Initiative (CPI) found that USD6.2 trillion of climate finance is required annually between now and 2030, and USD7.3tn by 2050, to deliver Net Zero while only USD1.3 billion was mobilised in 2021/22 (the most recent available data) (Buchner et al., 2023). Ironically, calls to mobilise more finance (620 billion Euros alone annually for the European Green Transition – or 4% annual GDP) may require an intensification of the very processes of extraction and value concentration that have caused the ecological crisis to address which the finance is required. Yet, so far, more ambitious calls for reform have fallen on deaf ears. This again highlights that required ‘degree of conscious management of the financial system which is not found in practice to date’ (Guter-Sandu et al., 2024: 17). New proposals include that of the Brazilian government for a 2% tax on the wealth of billionaires or for a ‘1.5 percent-for-1.5°’ wealth tax: a global wealth tax on individuals owning more than 100 million dollars net of debt. This tax would apply to the 65,000 richest adult individuals, representing just a little more than 0.001% of the global adult population that could raise about US$300 billion every year (Chancel et al., 2023). These represent potentially progressive moves, but there have been deliberate and concerted efforts to ensure tax is not used as a means to generate revenue and redirect wealth to where it is most needed (Green, 2021) which may hamper the success of such initiatives.

It seems plausible then, that while UNEP talks of a ‘quiet revolution’ in finance taking place (UNEP, 2015), it may be more a case of ‘trasformismo’: powerful financial and state actors accommodating the pressing need to address ecological crisis through means which consolidate their power through the creation of new opportunities while minimising threats to dominant interests and infrastructures of power (Newell, 2019). In practice, sustainability transitions will likely require regulation, coordination, and investment by patient capital, rather than a pure focus on increasing the volume of private finance regardless of its characteristics. Green finance, despite its expounding of an ethical and object-oriented framework, is still fundamentally disembedded from social relations whereas the papers in this special issue point to the need to re-embed finance in stronger frameworks of social and ecological control invoking a more Polanyian analysis (Green, 2023; Polanyi, 1980 [1944]). For critical IPE then, it is imperative to move from a narrower focus on enabling green finance to greening the entire financial ecosystem of which it is a part.

Yet leaning on Polanyi’s insights does not fully capture what is at stake in the complex political entanglements between finance and green transitions. The process of embedding and the very definition of embeddedness may be significantly different with respect to sustainability transitions. The Polanyian response to footloose capital in the early 20th century was to re-embed it within social relations, coordinated by a more state-led form of financial allocation. Yet there is reason to doubt that such a move would have the same progressive effect in the 21st century. Both the state and the traditional ‘agents’ of progressive change may not prove to be aligned with the goals of environmental justice. The state is deeply enmeshed in the fossil fuel economy and has a strong material interest in sustaining highly polluting economies. This is the case across both the Global North, where the geoeconomics of energy security is driving a renewed push towards fossil fuel extraction, and the Global South, where resource and production-intensive economic models are crucial to the reproduction of state power. State-owned enterprises are some of the largest investors in fossil fuels. Of the ninety companies that have caused two-thirds of anthropogenic global warming emissions, thirty-one are state-owned companies such as Saudi Arabia’s Saudi Aramco, Russia’s Gazprom and Norway’s Statoil (now Equinor) (Heede, 2014). This is also true of public development banks, whose progressive potential is defined largely by the political environment in which they operate (Marois, 2021). Re-embedding economic decision-making in the state may not, in and of itself, address the challenges posed by green finance.

Likewise, the means by which the state became a progressive force in Polanyi’s analysis was its capture and utilisation by the agents of progressive change: the working class resisting unfettered markets because their interests were visibly and attributably harmed by capital’s disembedding from social relations (Polanyi, 1980 [1944]). By contrast, fossil fuel and other environmentally damaging industries (mining, deforestation) are part of the social fabric that enables relative gains for workers globally. This is apparent in the moves by trade unions in carbon-intensive sectors of the economy to actively resist transitions away from fossil capitalism (Baker et al., 2014; Hochstetler, 2021). As such, states’ legitimation may depend on not channelling finance away from these labour-intensive and profitable industries. This requires a broader analytical and strategic lens to explore a diversity of interests across traditional state-market-society divisions and to understand how and where coalitions of interests can be leveraged to realign green finance with ecological objectives and planetary boundaries. Insights on transnational forms of governance constituted by novel alliances between cities, civil society and corporate actors, often bypassing the state, suggest concrete ways forward to bypass this resistance (Bulkeley et al., 2014). This will require greater attention to the social and ecological costs of transition within and between societies as well as shifts in ideology and culture able to disrupt the reduction of prosperity to the narrow and destructive pursuit of economic growth (Jackson, 2011).

The peril and hope of green finance

This paper has used the contributions to this special issue as a point of departure to explore the politics of green finance as a means to support sustainability transitions. The contemporary terrain is replete with perils, threats and opportunities unevenly borne and captured by a range of financial and social actors. The perils of green finance foregrounded in this special issue show that, currently constituted, green finance is failing to challenge the dual crisis of uneven development and environmental collapse. We are faced with the possibility of green finance failing to sufficiently slow or, worse still, accelerating ecological collapse while at the same time exacerbating the unjust allocation of finance globally.

Given the scope and scale of the financing (and divestment) required for mitigation and the support for adaptation, current financing gaps suggest transitions are not happening at the pace or scale they need to cope with catastrophic change. CPI find that global climate finance needs will amount to $6300 billion worldwide in 2030 (Buchner et al., 2023) and should have reached about $4200 bn in 2021. Yet in 2021, total climate finance amounted to $850 bn: a significant sum, but nowhere near what is required. This is hugely challenging, yet needs to be set against the costs of inaction. Without such interventions, warming will exceed 3°C, leading to macroeconomic losses of at least 18% of GDP by 2050 and 20% by 2100 (NFGS, 2022). As we have shown, this is, to some extent, a structural problem. It is a price and profit problem for the mode of production. If the price is wrong (Christophers, 2024) then the finance will not flow to the sectors and regions where it is most required because it is not profitable for it to do so. Proposals for more robust forms of governance of green finance are running up against the interests of private finance, expressed through the forms of infrastructural power which make the failure to transition a very real peril.

Likewise, the finance that is being mobilised is being distributed unjustly. If green finance continues to work through the infrastructure of global finance as it is currently structured, we are likely to see the current inequalities deepened. The ongoing maldistribution of finance and lack of democratic and public scrutiny over where finance comes from (and whether it is ‘new and additional’ finance), where it is allocated and for what purposes, suggests green finance, as currently constituted, performs poorly as a vehicle for delivering procedural and distributional justice. This is true across regions with larger economies such as China, India and Brazil capturing the lion’s share to date and in terms of an imbalance towards finance for mitigation over adaptation, for example. Even if the infrastructure to monetise certain aspects of the transition could be built successfully, this may merely lead to the further deployment of spatial and temporal fixes by powerful financial actors in the core of the global political economy, passing risks onto the weakest.

This is notwithstanding the fact many organisations now have green requirements or auditing built into their work, and most asset owners and investors have significantly increased their green assets. There are also groups of states and activists wanting to seriously rewire the financial system in ways reminiscent of a new international economic order. We are witnessing greater social pushback, questioning the license to operate of major polluters and their financial support for dirty industries and practices. State infrastructural power has the potential to drive meaningful change, and in some cases already is doing so by imposing limits on lending and the use of finance for fossil fuel industries, for example, under pressure from activists and environmental defenders. Social pressure on the selective strategic choices states make as they seek to reconcile the goals of accumulation and legitimation can create openings to re-embed finance in frameworks of social and ecological control that are more aligned with a notion of the common good.

While the papers in this issue have predominantly focused on the challenges of green finance, the role of private finance in the green transition is probably here to stay. The task for critical IPE scholars then is not to become fatalistic or remain in the domain of critique, but rather to explore opportunities for transitions within and transformations of dominant financial systems. This means occupying the often-uncomfortable space between furnishing structural critiques which point to the immense difficulty of bringing about change and the work of engaging with near-term strategies of what inevitably look like incremental change at first, with a view to effecting more transformative change over the longer term. This will inevitably result from a combination of ‘outsider’ social contestation and resistance and ‘insider’ forms of engagement with the political work of institutionalising governance systems and new rules of engagement which better align economic and environmental imperatives. Our analysis of the limits of existing approaches should not, therefore, lead to fatalistic resignation, but rather an attempt to steer the strategic selectivity the state exercises in more progressive directions; something which will require new alignments of social forces with a common aim of redirecting finance for the common good defined as public welfare rather than private accumulation and prosperity over narrower understandings of economic growth. Emergent strands of critical scholarship in IPE which seek to question and de-centre growth as the central guiding principle of the global political economy can be usefully deployed in this regard (Hasselbalch and Kranke, 2024; Newell, 2024).