Taking finance seriously: Understanding the financial risks of unsustainability

Preprint of Chapter 2 of The Cambridge Handbook of EU Sustainable Finance: Regulation, Supervision and Governance, edited by Kern Alexander, Matteo Gargantini and Michele Siri (Cambridge University Press, forthcoming 2023)

University of Oslo Faculty of Law Research Paper No. 2022-58

Nordic & European Company Law Working Paper No. 23-02

25 Pages Posted: 6 Dec 2022 Last revised: 29 Jun 2023

See all articles by Beate Sjåfjell

Beate Sjåfjell

University of Oslo - Faculty of Law; College of Europe - European Legal Studies Department; EUSFIL Jean Monnet Centre of Excellence

Date Written: December 6, 2022

Abstract

Finance that does not take sustainability seriously is finance that does not take finance seriously. The financial risks of the continued lack of sustainability brings sustainability into the heart of any well-founded financial decision, whatever view one might have on the role of finance and business in society.

In Europe and with knock-on effects globally, the EU’s sustainable finance initiative seeks to realise the potential of finance to contribute to necessary change in the real economy. In this draft chapter, I investigate the relationship between finance and sustainability. This entails a broad analysis of the risks of unsustainability, which go beyond the established recognition of the financial risks of climate change. Climate change has been declared code red for humanity, and horrific wildfires, droughts and floods underline that climate change is a serious risk increasingly is being realised with implications for all aspects of our economies and societies. Yet, what we face is a convergence of environmental, social and economic crises, calling for a mobilization of resources to deal with these crises across sectors.

Section 2 of this draft chapter gives a brief overview of the problematic aspects of the mainstream conceptualisation of financial risks of climate change, mentioning also briefly the ongoing development of a framework for financial risks of biodiversity loss. Section 3 introduces the research-based concept of sustainability that I employ as the framework for the analysis presented further on in the chapter. Section 4 presents the analysis of financial risks of unsustainability. I outline the physical risks of various environmental issues, and the transition risks of both environmental change and social aspects of unsustainability. Section 5 concludes with brief reflections on the necessity of and the legal basis for implementing a research-based approach to risks of unsustainability in law and policy reforms and in practice.

Keywords: Sustainability, EU law, sustainable finance, financial risks of climate change, TCFD, TNFD, planetary boundaries, climate, biodiversity, novel entities, social foundations, human rights, decent work, taxation, societal risks, catastrophic risks

Suggested Citation

Sjåfjell, Beate, Taking finance seriously: Understanding the financial risks of unsustainability (December 6, 2022). Preprint of Chapter 2 of The Cambridge Handbook of EU Sustainable Finance: Regulation, Supervision and Governance, edited by Kern Alexander, Matteo Gargantini and Michele Siri (Cambridge University Press, forthcoming 2023), University of Oslo Faculty of Law Research Paper No. 2022-58, Nordic & European Company Law Working Paper No. 23-02, Available at SSRN: https://ssrn.com/abstract=4294693

Beate Sjåfjell (Contact Author)

University of Oslo - Faculty of Law ( email )

PO Box 6706 St Olavsplass
Oslo, 0130
Norway

HOME PAGE: http://www.jus.uio.no/ifp/english/people/aca/beatesj/

College of Europe - European Legal Studies Department ( email )

Dijver 11
B-8000 Brugge, Oost Vlanderen 10000
Belgium

EUSFIL Jean Monnet Centre of Excellence ( email )

Italy

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