Pensions and the Organizational Ecology of Global Sustainable Finance Governance

• In Event: International Monetary and Financial Governance

Abstract

How do we account for the emergence of global governance in new issue areas when states are asleep at the wheel? In the last twenty years, over one hundred global governance initiatives entailing rules, norms, and standards have been launched to steer the financial industry toward alignment with climate mitigation and environmental goals. Thousands of investors, banks, and insurers have crowded into UN, industry, and NGO-convened initiatives. Trillions of dollars of assets under management have been committed to decarbonization. What may be different about “sustainable finance”—and what frustrates the transposition of existing IR theories to this instance of global governance—is two-fold. First, much of the institutional proliferation has been bottom-up, emerging from markets even before states could identify their preferences on the issue of “sustainable finance.” Second, there are profound differences between the representation of corporations from various countries in these venues, suggesting a more variegated mechanism of global governance emergence, uptake, or evolution than suggested by the more general explanations we have at our disposal. To address this puzzle, and in making use of historical institutionalism and organizational ecology, I argue that regulatory choices made at the domestic level can produce populations of transnational actors, in greater or lesser numbers, that ultimately interact and negotiate governance arrangements addressing common, transnational concerns at the global level. In turn, these populations reshape market power, which, in the case of pensions that invest in financial markets, generates novel interdependencies in the global political economy, implicating other political and economic actors in their self-governance. In this paper, I demonstrate the validity of this argument in two stages, using process tracing and panel regressions with an original dataset on financial institution participation across 46 governance initiatives from 2000-2020. First, I show how countries that have moved to market-based pension systems are better represented in early governance initiatives. These first-mover institutional investors, attempting to navigate the environmental concerns of their stakeholders, ultimately go on to catalyze the extensive expansion of subsequent—and increasingly public—governance architecture. Second, given the market power of pension funds, I demonstrate how the degree of pension financialization predicts national variation in the uptake of sustainable finance governance in other sectors like banking and asset management. In addition to a novel contribution to our understanding of regime complexes, this paper highlights an under-emphasized pathway in the two-level game of international politics: the making and unmaking of economic agents that, through their subsequent actions, reshape the context in which states operate.

Author

• Christian Morin Elliott, Pennsylvania State University