From climate risk to net-zero and beyond: is ecologically rational regulation emerging in the finance sector?

Ecologically rational regulation, as elaborated by Christine Parker and Fiona Haines, provides a useful frame to understand and critique the fast-evolving regulatory space of sustainable finance. Using Australia as an exemplar of Anglo-American jurisdictions, this chapter explores how recognition of climate change as a financial risk issue has catalysed regulatory trajectories in the finance sector that exhibit some of the characteristics of ecologically rational regulation. Initial developments along these trajectories occurred within the boundaries of existing frameworks for financial risk regulation, which aim to protect market stakeholders and maintain stable, efficient markets. Yet more recent regulatory activity has been characterised by different constellations of actors (civil society, investor coalitions, industry bodies) using diverse regulatory strategies (advocacy, investor engagement, strategic litigation) and is pushing these boundaries in ways that recognise ecological limits, and which seek to disrupt dominant forms of market activity and organisation that contribute to social and environmental harms like climate change. The early seeds of an ecological approach to financial regulation are certainly discernible, and further developments seem likely as sustainable finance reform agendas unfold around the world. Yet, sustained research attention is needed to track and assess the impact of these developments in helping to bring economic activity into line with ecological and social limits.