Introduction: The Greening of Global Financial Markets?

Most literature examining the global economy's environmental significance focuses on the global trading system and transnational production. Less attention has been devoted to global finance. To be sure, there are many studies of the environmental implications of lending by public international financial institutions such as the World Bank. But the much larger flows of money associated with private global financial markets have been largely neglected within environmental scholarship.

This neglect is unfortunate since global financial markets are key drivers of the contemporary global economy. Enormous volumes of financial capital circle the globe electronically on a twenty-four hour basis. The scale of these private international financial flows dwarfs not just public international lending but also volume of international trade and foreign direct investment. If the global economy is to be made more environmentally sustainable, this powerful "electronic herd" of global money will need to be steered in greener directions.

Over the past decade, a number of initiatives have been launched with this objective in mind. Some have sought to encourage more sustainable practices in specific financial sectors, such as the creation of the voluntary Equator Principles to govern project finance. Potentially even more significant have been initiatives to encourage investors across all markets to redirect their money towards greener economic activities through greater disclosure of information about the environmental practices of firms. The articles in this special section focus on the politics of these latter initiatives.

Michael MacLeod and Jacob Park highlight how the most prominent initiatives of this kind have been organized by groups of investors themselves, particularly large institutional investors such as pension funds and mutual funds. Often working with environmental groups (as well as with official support in some cases), these investor groups have developed voluntary standards for the disclosure of corporate information that is relevant to climate change, such as greenhouse gas emissions or exposure to climate-related risks. With more accurate information, investors can then direct their money towards firms with better practices either for ethical reasons or for the profit-maximizing rationale of reducing their vulnerability to risks associated with climate change.

Because of their potential significance, these initiatives are described by MacLeod and Park as important examples of emerging forms of transnational private governance in climate change politics or what they refer to as "investor-driven governance networks" (IGNs). Many IGNs are involved in more than just the development of voluntary standards for information disclosure at the international level. They have also been engaged in more direct shareholder activism to influence corporate managers, and the lobbying of official institutions such as the US Securities and Exchange Commission to require mandatory reporting of material risks associated with global warming.

Jason Thistlethwaite complements MacLeod and Park's analysis with an investigation of the role of international accounting standards in the disclosure of corporate information relating to environmental liabilities and risks. Accounting is often portrayed as a neutral technical practice, but Thistlethwaite highlights its political significance as a "powerful calculative practice" that defines economic value for the marketplace. As he points out, seemingly obscure accounting debates can have major consequences for the ways firms disclose their environmental risks and liabilities, consequences which in turn may influence financial flows. For this reason, Thistlethwaite argues that accounting standard setting bodies need to be recognized as important authorities in global environmental governance. In particular, he directs our attention to the International Accounting Standards Board (IASB) which has emerged over the past decade as a powerful body setting accounting standards for over 130 countries. As he notes, the IASB may represent an even more powerful tool for mitigating environmental problems, such as climate change, than the voluntary initiatives of IGNs.

Adam Harmes provides a more skeptical perspective about the significance of "investor environmentalism" and carbon disclosure initiatives. He argues that these initiatives assume that investors will respond to better information about the various long-term climate change risks, ranging from physical to regulatory risks, faced by firms. From his standpoint, that assumption ignores the fact that the investment choices of institutional investors are made by fund managers who face incentives to maximize short-term profits. Even...