𝗦𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗹𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝗵𝗮𝘀 𝗮 𝗽𝗿𝗼𝗯𝗹𝗲𝗺. Not greenwashing, but something deeper. A new paper by Roberts, Rosenbloom and Meadowcroft offers a framework for studying failed transitions (see link in comments). Three tests: 🔷 Was there a genuine attempt at regime change in terms of vision and investments? 🔷 Did momentum stall? 🔷 Did the regime stay essentially intact? Apply it to sustainable finance. The results are uncomfortable. 🟢 Test 1: yes, easily. The vision was real and ambitious. Redirect capital flows and price risk properly. Make sustainability central to investment decisions. And the material steps followed: the EU taxonomy, SFDR, TCFD, green bond standards, impact investing frameworks. Trillions in assets now carry a sustainability label. 🟠 Test 2: momentum stalling. The ESG backlash in the US. The EU's own Omnibus proposal quietly gutting reporting requirements. Asset managers rowing back on climate commitments. The narrative shifted from "finance as driver of transition" to "finance as victim of overregulation." 🔴 Test 3: the regime. Still largely intact. Capital still flows predominantly to incumbents. Fossil fuel financing by major banks has increased since Paris. The financial system still prices long-term ecological risk as someone else's problem. So what is this, exactly? Not a classic transition failure. The attempt is real, the momentum not fully lost. But the gap between activity and actual regime change is enormous. We have built an elaborate architecture of sustainability finance on top of a system that has not fundamentally changed how it allocates capital. A parallel case from the paper helps here. Flying cars. Prototypes existed. Magazines wrote about them. But no serious infrastructure, no regulatory reform, no business model. The paper calls this a "failure of a technological concept." Sustainable finance risks something similar. A vision that generated enormous activity, enormous labeling, enormous reporting. But the core regime logic, grow capital, price risk short, externalise nature, remains untouched. That distinction matters for what comes next. You fix a stalling transition differently than one that never properly started. The energy transition sits in a different position. Vision, material steps, regime bending. A transition underway but too slow. Sustainable finance was supposed to accelerate it. So far, that promise is largely unmet. What do you think: genuine transition attempt running into headwinds, or an elaborate niche that was never going to touch the regime?
Nick Robins
1w
And now’s the moment to reboot the sustainable finance agenda, learning lessons and taking inspiration from the Santa Marta coalition of frontrunners to explicitly connect strategies in Europe to the investment needs of the Global South in order to phase out fossil fuels
[1/1] Thank you for this uncomfortable reflection on ‘sustainable finance ‘. Hans Stegeman. The “failed flying car transition” analogy quoted is useful, but perhaps there is an even more revealing historical parallel: whale oil. Humanity continued hunting whales almost to extinction long after whale oil was no longer truly indispensable. We already had alternatives, what we lacked was the political economy, governance and collective willingness to transition at the speed required. We stepped back from the brink largely because substitutes eventually became overwhelmingly superior, not because humanity suddenly became wise. That feels uncomfortably close to where sustainable finance sits today. For decades we have built increasingly sophisticated architectures of, "disclosure/reporting frameworks” in the spirit of ‘what gets measured, gets managed’, “green finance”, “sustainable finance” and ESG-labelled capital while the underlying regime logic remained strikingly intact: maximise short-term returns, externalise ecological costs and preserve incumbent power structures. (cont. below)
SF has been based in the development of useful tools, that can give more reliable information about financial risks and opportunities, but there is a strong political case still to make. SF risks and opportunities come to guide financing only if the the political status quo shifts from current FF dominated to RE as the steering house. As the US (FF) is still dominating global financial markets, SF do not change financial practices meaningfully. China (RE) is moving to get a good share of the global financial market, but it is still behind, for a time. This is a key factor. These two are not the only countries (or financial jurisdictions) in the world, but are the most ilustative to show the political weight in global markets. the reality is, despite what we learn in school, we are not (never been) in competitive markets drived by relative prices information.
Thanks very much for this post, Hans Stegeman! I agree that the energy transition has not “failed” according to the framework. It’s a huge global scale shift that continues to have momentum albeit uneven, depending what aspects you look at. As far as sustainable finance goes, I’m not sure the framework is well-designed to address finance at all. It’s meant to look at socio-technical systems across 5 dimensions including technology, infrastructure, governance, business and citizens. But assuming we can apply the framework to sustainable finance, it helps to split sustainable finance into its 2 parts and judge them separately. The first part, Financing Sustainability, looks like a successful transition is underway. However, Part 2 - a transition toward financial actors Behaving More Sustainably across all their activities - does not appear to have succeeded to the extent many had hoped.
We need to distinguish between financing sustainability and sustainable finance. The former is here to stay, as investor beliefs and risk perceptions are slowly ‘modernizing’ and some (though not all) sustainable business models are becoming more viable. But sustainable finance, defined as regulating the financial sector into green behaviour, was always a flawed concept. Yes, regulators demanding from institutions to take ESG risks into account is important and to some extent effective. But as soon as we accepted that green finance comes with more reporting requirements than conventional finance, the cause was lost. I believe if we had worked harder on the regulatory environment for business in general, with a focus on improving the profitablility of sustainable business, we might have made more progress. Mainstream sustainable finance is more probably a result of a blooming sustainable business environment than a cause.
Stefan Kwant
6d
I have not seen compelling evidence that there has been an energy transition in the historical sense at all. What we’ve mostly seen is energy addition, not substitution. Low carbon energy production (what some call "renewables") scaled up while fossil fuel demand also keeps growing globally. The underlying growth logic of the regime remains intact. I do not think sustainable finance was never really accelerating a transition that was already underway. It was helping stabilize a narrative of a "energy transiton" while remaining fully compatible with continued growth and fossil expansion. I think the deeper question is ultimately one of justice and decolonisation. Sustainable finance for the "energy transition" still depends on extractive global relations remaining intact: critical minerals, cheap labour, outsourced ecological destruction, and unequal control over value chains. So the issue is not only whether sustainable finance failed to transform the regime internally, but also whether a genuinely sustainable transition is even possible while the global economy continues to rely on deeply uneven relations between core and peripheral regions.
Julia Symon
1w
Looks a bit more like an elaborate niche, which I guess was supposed to be growing and leading to a new bonanza. Yet, what would happen with the regime was tacitly and pusposefully ignored. Then the voice of that niche against the regime grew louder (as luckily-unluckily climate change is too big of a threat and approaching too fast). Will we still manage to keep going/better on track (leadership, reflection on what was missed in the strategy, democratic choice) or will a major disaster and damage will be needed to overthrow the regime instead of transitioning?
Interesting framing. I trust sustainable finance became something different from either. The core of the issue is that we built an elaborate financial architecture instead of confronting deeper economic system change. While susfin was originally conceived as a catalyst for broader economic transformation, disclosures and taxonomies became the horizon of political intervention. So we grafted an enormous superstructure onto an economic regime whose parameters changed only marginally. I see 2 main sources for the backlash: 1. Fierce reaction from incumbent fossil-fuel order as susfin began to challenge to the status quo; 2. Growing exposure of systemic limits : insufficient progress in the real economy has made the disconnect between red tape and green shoots increasingly visible. More here: On how disclosure became the horizon & how this fueled the backlash: https://lnkd.in/eJQ8qe-x On the distinction between financing the transition & transforming https://lnkd.in/exxJ_hHf
I dare to say that the field is largely responsible for the current state - my experience shows that there is too much activism not mmuch action, too much ego not that much collaboration, too much individual solutions not that much capacity building, too much parroting not that much learninng. I am still a keen believer that we have an open path ahead and that we will be able to build the structure to an effective transition but I also think that we are at risk of mimicking what has happened in the past where we basically tried to build something "new wiithout changing our individual - and collective - mental models. Maybe I am wrong (would love to be).
Here is the paper 👉 https://www.sciencedirect.com/science/article/pii/S2210422426000420?via%3Dihub