Taming unsustainable finance: the perils of modern risk management
Company Law Forum with presentation by Dr. Jay Cullen, Lecturer in Banking and Finance Law and Director, Sheffield Institute of Corporate and Commercial Law.
Jay Cullen is a visiting researcher at the Department of Private Law and will stay until 8 December.
About the topic
In this chapter, we argue that the time is right to explore new ways of thinking about the challenges posed by “weak forms” of sustainability. We posit two contentions. First, we argue that the trust placed in regulatory techniques such as disclosure and transparency in financial markets will not deliver sustainability in any form because of the institutional structure of financial intermediaries, which is characterised by a compounded agency problem, as well as the removal of humans from capital allocation decision-making. Second, we argue that both capital providers and allocators make a category error when they rely on axioms from the modern risk management paradigm to quantify the risks to their asset portfolios from climate change and other environmental risks. This analysis leads us logically to three policy prescriptions, namely: direct regulation of the capital provider-allocator relationship; the uprating of the fiduciary duties of capital allocators to account for sustainability risks; and the modulation of the credit supply through macroprudential regulation to mitigate the impact of finance on sustainability.