Climate change and global finance at a crossroads

Political challenges, political-economic dynamics and sustainable transformation

Project overview

Humanity is facing a millennium challenge: the transformation of state, industry, and society towards zero CO2 emissions in the next 20 to 30 years. This goal can only be achieved if appropriate financial resources are available. The financial sector, however, is struggling to steer financial flows towards sustainable investments. Although the risk is extremely high that CO2 intensive assets will lose much of their value in future years, they still generate too much profit in the near term to expect financial players not to continue investing heavily in them. It is therefore crucial for public authorities and civil society to create incentive structures and regulatory corridors to effectively motivate the financial industry to strengthen their efforts toward solutions that will limit the causes of climate change.

Such a transformation, however, cannot be realized simply by redirecting a few investments, or developing a number of new technologies. In the field of climate governance and global finance, we are dealing with a complex collective action problem that urgently requires close coordination of efforts between and among a large variety of actors and institutions including central banks, governments, and their ministries, the various players in the financial sectors, civil society, the international research community, and international regulative bodies. It is precisely because climate policies and measures leading to sustainable finance are so complex that the domain in which they are shaped is so difficult to regulate and coordinate.

Policies mitigating climate change can only be successful if they can rely on a strong, sustainably-oriented financial sector. Studies have overwhelmingly demonstrated that a change in investment behaviour is not based on functionalities, but rather on economic interest, profit-maximizing behaviour, social pressure, and politico-economic structures. Available knowledge on how to regulate and incentivize financial actors to move towards more sustainable finance, however, is very limited. The research project will work toward offering a broader, deeper, and more differentiated analysis precisely of this question. Overall, it will lead to a deeper understanding of the interplay and reflexive dynamics between the financial sector on the one hand, and government bodies, central banks, and civil society on the other, and the impact, implications, and efficacy of government policy and regulation on investment behaviour. In this way, the research findings will contribute to the development of a more informed framework for restructuring the financial sector towards sustainable finance. 

Aim of the project

(a) to develop an interdisciplinary and multi-method analytical framework appropriate for studying the connections between the financial sector and climate change,

(b) to apply this framework to obtain, process, and analyse relevant data in this connection

(c) to evaluate the internal financial market dynamics and the responsiveness of financial actors related to (c1) regulations, (c2) climate/fiscal policy, (c3) monetary policy, and (c4) civil society demands and campaigns,

(d) to examine the interplay and reflexivity of each of these areas with and among one another, and, on the basis of the prospective findings, 

(e) to draft realistic proposals for policy instruments and strategies designed to incentivize the financial sector towards sustainable investments, and

(f) to make concrete policy recommendations (policy mixes) on ways to accelerate the transition to a low carbon financial system.

The project is divided into four work packages (WPs):

WP 1: Financial actors and logics of sustainable finance: impediments and positive drivers towards sustainable finance

WP 2: Central bank policies, government climate/fiscal policies, and the financial sector

WP 3: Civil society and climate finance

WP 4: Project management, Policy Innovation Lab (PIL), stakeholder dialogues, and public outreach.

Further information

Previous publications:

Schairer, S.; Fichtner, J.; Baioni, R.; Pereira de Castro, D.; Aguila, N.; Urban, J.; Haufe, P.; Wullweber, J. (2025). Shadow Carbon Financing: How offshore finance and shadow banking hamper the green transition and increase climate-related systemic risk. [tra:ce] Working Paper Series, No 1. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5196946 

Fichtner, J.; Schairer, S.; Haufe, P.; Aguila, N.; Baioni, R.; Urban, J.; Wullweber, J. (2025). Channels of influence in sustainable finance: A framework for conceptualizing how private actors shape the green transition Finance and Society , Volume 11 , Issue 1 , pp. 56 – 80.

Aguila, N.; Wullweber, J. (2025): Legitimising green monetary policies: market liberalism, layered central banking, and the ECB's ongoing discursive shift from environmental risks to price stability. In: Journal of European Public Policy, 32 (3), 665-696.

Aguila, N.; Wullweber, J. (2024): Greener and cheaper: green monetary policy in the era of inflation and high interest rates. In: Eurasian Econ Rev 14 (1), pp. 39-60. doi. org/10.1007/s40822-024-00266-y

Aguila, N.; Haufe, P.; Wullweber, J. (2024): The ecor as global special purpose money: Towards a green international monetary system to finance sustainable and just transformation. In: Sustainability Science, https://link.springer.com/article/10.1007/s11625-024-01484-8

Project management