Management Insights for Tackling Grand Challenges: Exploring Policy Instruments, Building a Transdisciplinary Understanding, and Extending Impact

A recent report by leading scientists worldwide found that the earth is beyond six of the nine critical planetary boundaries, with the climate change indicators now being even further outside the safe operating space than in the last update. In the context of the escalating climate crisis, a flurry of public and private sector programs aimed at the financial sector have been pursued in recent years in order to prepare the sector as well as deliberately using it to intervene in the climate crisis, i.e., "making finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions" (Article 2.1(c), Paris Agreement, 2015).

The initial FLF project focused on one core challenge in the attempts to change the financial sector in response to the climate crisis: the production and use of knowledge in the form of data, metrics and frameworks. Over the course of three years, the research team documented in detail the actions of a variety of organisations, including institutional investors, asset managers, banks, analytics and data providers, NGOs, investor networks and open-source platforms, and sought to understand how changes at the level of organisations (micro) relate to changes at the level of the industry (macro).

The team used a qualitative research approach known as mobile ethnography and employed open-ended interviews, participant observations and close reading of documents as means for collecting data.

The extensive fieldwork revealed that even though the knowledge practices produce important insights about the interaction between financial practices and the climate crisis, they are also limited and biased (e.g., not being able to account for emerging markets, just transition or tipping points). What is more, the knowledge being produced is not fully leveraged in the investment, lending and engagement practices of financial institutions.

We identified a number of barriers that currently prevent use of climate-related knowledge by investment and lending teams, such as, time horizons, interpretations of fiduciary duty, and doubts about government action on climate change. Hence, it is not surprising that a recent study of 562 of the world's largest private finance institutions concluded that current investment practices fall far short of what is needed to achieve 2030 Paris Agreement goals.

One reason for why climate action by financial institutions is falling short is the policy environment in which they operate. Financial policy instruments, such as disclosure regulation or supervision, actively participate in shaping how the financial sector produces and uses climate-related knowledge. The FLF renewal project thus seeks to extend the mobile ethnography to a previously excluded part of the ecosystem of organisations, i.e., financial policy and regulation.

Specifically, it will examine how specific policy instruments preformat knowledge practices within private financial organizations and how they thereby facilitate or constrain change in financial practices.

In addition, the FLF renewal project will exploit the full impact potential of the research. Impact activities will focus on influencing policymaking and scaling up impact on practice, with the overarching aim of channeling more investments towards low-carbon assets and away from high-carbon assets, as set out in the Paris Agreement. This will be accomplished by co-designing interventions in policy and practice with financial institutions, NGOs, and professional associations.

Finally, the FLF renewal project will also reach beyond a management and organization studies perspective on the role of the financial sector in the climate crisis to develop a transdisciplinary understanding of green finance. We will organize a series of workshops bringing together an interdisciplinary community with scholars from management, sociology, geography, anthropology and political economy and produce outputs in the form of edited volumes or special issues.