Financial institutions, companies, and the biosphere

Abstract: International organisations, governments and civil society have become increasingly vocal in their demands that financial institutions take social and environmental responsibility for the companies they invest in. Some financial institutions have started to assume this responsibility in practice by building international alliances and standards, by reallocating their capital, and by trying to influence corporate policies towards environmental and social goals. Through their ability to allocate and price capital, financial institutions are sometimes believed to be a leverage point to enact rapid and large-scale change towards sustainability. The influence these financial institutions have is still under-researched, however, especially on companies in sectors associated with changes in the biosphere which pose severe risks to human development. In this thesis, I ask: to what extent can financial institutions advance biosphere-based sustainability through their investments in companies? I have three main aims. The first one is to identify key companies and financial institutions which can be linked to changes in the biosphere that pose severe risks to human wellbeing. I select the most critical commodity production sectors driving large-scale biosphere change using insights from social-ecological systems science. I focus on economic activities that result in anthropogenic land use changes that either affect known tipping points in the climate system (the Amazon rainforest), or that increase the risk of emergence and re-emergence of vector-borne and zoonotic diseases. The second aim is to develop methods to assess the degree of influence that financial institutions have on corporate activities, drawing from finance research and management theory. I investigate the relationship between financial institutions and large companies, and especially to what extent companies are reliant on different financial flows for their operations, in order to determine through which mechanisms financial institutions could exert influence on them, if at all. Assessing the potential influence of financial institutions on companies requires combining existing methods and bringing together disconnected sources of data about environmental impact, business activity, investments, and financing sources. The third aim is to analyse what factors pose limits to financial influence.Paper 1 analyses the role played by financial institutions as owners in industries associated with anthropogenic land use changes and, as a result, increased zoonotic disease risks. We identify publicly listed companies present in nine regional case studies, as well as the financial institutions that invest in them. We analyse those financial institutions’ potential influence based on both their ownership size and their position in the network of owners.Paper 2 examines the origin of loans obtained by all companies operating in the high deforestation-risk sectors of mineral production, soy trade or cattle trade in the Brazilian Amazon. We assess to what extent companies rely on relatively unaccountable sources of credit, notably credit from secrecy jurisdictions and transnational intra-company credit, which may limit the potential for influence from financial institutions.In conclusion, I find that financial institutions have an important role to play in many sectors and regions analysed, but that this role is limited by a number of factors. These factors include the prevalence of non-financial shareholders in some companies, especially in case studies in the Global South, and the reliance of companies on internal finance and financial flows from secrecy jurisdictions. Companies themselves, and the inner workings of their corporate groups – their private owners, their subsidiaries in various countries, their ethical stance – seem to also be of great importance.