Whitewashing green swans: Sustainable finance and the epistemic foundations of policy paradigms

Anthropogenic climate change has consequences for the financial sector that are difficult to anticipate or predict precisely. Whether with potential climate tipping points or the sheer complexity of interactions between planetary and socio-economic systems, grappling with “radical uncertainty” is necessary to fully understand and evaluate appropriate policy solutions. Although some central banks are recognizing this, institutional investors, asset managers, and banks persist with a conceptualization of climate change as a risk that can be measured, managed, and hedged against, including in their climate policy proposals. Using the policy paradigm framework, this chapter argues that groups may choose interpretations of uncertainty that best conform to their interests and policy objectives, where epistemology forms a bedrock upon which problem conceptions, goals, and policy instruments are justified. The chapter examines the plausibility of this argument by analyzing discourse in the case of the Climate Finance Leadership Initiative, a UN-convened agenda-setting exercise drawing on some of the world’s most influential pension funds, insurers, and banks. I find that interdependencies between financial capital and polluting industries make reckoning with radical uncertainty and precautionary action untenable, while also requiring the state to make such an interpretation possible.