The EU’s “green” finance. Can “exit”, “voice” and “coercion” be enlisted to aid sustainability goals?

Abstract

Climate change is humanity’s defining problem for this century, and
policymakers are trying to reform finance to aid in that goal. The flurry of activity is
substantial, but is it enough? In this paper we assess the strength of the means chosen to
make finance sustainable, by considering sustainability a “promise”, like the financial
promise to pay a sum of money, or maximize profits, and comparing the means used to
protect one and another promise, using the categories of “Exit”, “Voice” and “Coercion” to
classify different legal tools. Current proposals are primarily based on transparency, and
thus rely primarily on “Exit” mechanisms, and only for some instruments. Since progress is
generally slow and hesitant on mechanisms relying on “Voice” and “Coercion”, and almost
absent in relation to some instruments, we conclude that the current strategy is adequate for
creating a market niche for green finance, but as it stands now it is not credible, as such, for
the broader goal of greening financial markets as a whole.

Keywords: green finance, green promises, exit, voice and coercion mechanisms, EU Green Taxonomy

JEL Classification: K22, K23