“Toward a sociology of climate risk” Online panel event Sept 7th, 2021, LSE Grantham Institute

September 2, 2021

Register for the event HERE

Ahead of the coming UN’s Climate Change Conference (COP26), this panel event is a call for social scientists and policy makers to take into account the social context in which climate risk modelling takes place.

Since the Paris Agreement of 2015, policy makers have called on the financial sector to address climate change. Central bankers have responded with efforts to model the financial impact of climate disruption — so-called “climate risk”— so as to prompt remedial action by investors and companies, as well as creating the Taskforce on Climate-related Financial Disclosures (TCFD) in 2016 or the Network for Greening the Financial System (NGFS) in 2017. Sociological studies of risk modelling, however, have established that the use of financial models for the purpose of estimating risk —whether Black-ScholesValue at Risk, or the Gaussian Copula— is fraught with traps and blind spots that can derail the modeller’s original intent, leading to crises and economic losses. Such traps include unintended consequences, feedback loops, structural silos, and performative effects. Addressing climate risk thus calls for identifying potential traps in climate modelling, and considering what structural, organizational or policy remedies might be needed. Sociologists, alongside other social scientists such as organizational scholars, are uniquely equipped to fulfil this reflexive exercise.

The issues raised by climate risk, however, go well beyond technical accuracy. While quantifying the likely cost of climate disruption is practical for investors — because it translates the complex and uncertain prospect of climate disruption into economic dollars and pounds — such economization is bound to raise political and moral questions over how the burden of climate disruption is distributed. Debates about what to model are bound to spill over into controversies over whose interests are taken into account, raising questions over the governance regime of climate risk models. Sociologists are again ideally placed to bring these political and moral questions into the realm of climate risk modelling.

Given the above, our panel brings together several specialists in the emerging field of climate risk as well as economic sociology. The host, Rebecca Elliott, is Assistant Professor at LSE’s Department of Sociology. Elliott’s recent monograph, “Underwater: Loss, Flood Insurance, and the Moral Economy of Climate Change in the United States” documents the dramatic effects that climate risk representations such as flood maps have on housing, employment, and coastal communities — leading to protracted political disputes. Her work establishes that climate risk representations (e.g., financial models) are neither neutral nor purely technical in nature, highlighting their political and moral implications.

The first panellist, Nick Robins, is Professor of Practice at LSE’s Grantham Institute on Climate Change and the Environment and has long championed the integration of finance into climate policy. Robins leads the sustainable finance research theme. The focus of his work is on how to mobilise finance for climate action in ways that support a just transition, promoting the role of central banks and regulators in achieving sustainable development and investigating how the financial system can support the restoration of nature. Robins will discuss how climate risk became a legitimate topic within mainstream finance, as well as how the recent history how climate risk shapes how assessments are being thought of or done at the moment. For instance, what were the decision points where alternative histories and thus alternative versions of climate risk assessment could have emerged?

The second panellist, Emily Budgen, is Visiting Scholar at the Centre for the Study of Existential Risk, University of Cambridge. She has previously worked on climate finance at the European Climate Foundation (ECF), where she developed technical knowledge of the field and supported research and action that leverages private financial tools to achieve the goals set out in the Paris Agreement. Budgen’s presentation will focus on the various tools that have recently been released to measure alignment with the Paris Agreement, eg carbon alignment metrics: are the tools guiding us in the right direction? The question is of increasing importance as more and more organizations adopt these tools.

The third panellist, Tanya Fiedler, is a lecturer in the Discipline of Accounting at the University of Sidney Business School. Fiedler’s interests are concerned with the ways in which engineering, actuarial science and climate science integrate into work practices, business strategy and accounting. Her presentation will focus on the problems entailed in using climate projections for managing financial risk, including differences in scale and differences in focus. Fiedler will also explore several opportunities and design options to integrate climate and risk models.

The fourth panellist, Matthias Täger, is PhD candidate at the LSE’s Department of Environment and Geography and affiliated with the Grantham Institute. His dissertation examines the governance of the relationship between finance and climate, with a specific focus on the TCFD and NGFS. Täger will present a framework (jointly developed with Daniel Beunza) for the development of a sociology of climate risk, taking a micro-sociological approach with a particular focus on tools and models. This identifies three stages in the process of modelling of climate risk, locating existing sociological analyses within them. In the design stage an emphasis on usability can lead modellers to overlook less actionable but key variables. In the diffusion stage, modelling can fall prey to perverse incentives as its popularisation results in the abandonment of cultural norms of prudence. In the stage of implementation, modelling can end up fragmented by structural silos within the modelling organization.

A debate among the panellists will be moderated by Daniel Beunza, Associate Professor of Management at Bayes (formerly Cass) Business School of City, University of London. Beunza’s recent book, “Taking the Floor: Models, Morals and Management in a Wall Street Trading Room” considers the organisational challenges posed by financial model in a derivatives trading floor. His research has established the importance of the organisational context in which financial modelling takes place, both structural and cultural, and the need to actively manage such context to avoid modelling blind spots and moral disengagement.

The session will kick off with an introduction by Elliott, and continue with five-minute presentations by each of the panellists. This will be followed by a moderated debate led by Beunza, and by Q&A from the public, moderated by Elliott.

Among the questions to be addressed in the event, we highlight three. One is the extent to which climate risk models will mediate the outcomes of the upcoming COP26. Will they be a sideshow in an essentially political dispute, or will they prove a key factor with distinct influence, helping make transition and policy risks that lie ahead real? Put differently, how do political and calculative dynamics come together in shaping climate risk outcomes?

Second, what challenges arise when societies delegate responsibility for the climate emergency in risk modellers — that is, in unelected finance officials and executives? How should these risk specialists’ efforts be governed, and how to ensure that non-elite voices are included?

Finally, how can scholars and policy experts develop a better grasp of the nature and therefore the limits of climate risk assessment? What role does finance have or can have in the wider context of our climate emergency? What are the limits to a risk frame, and what alternative frames exist?

Taken together, we hope the panellists’ presentations and debate will stimulate a research and policy response to a key development — the integration of finance into climate policy, in the form of climate risk modelling. Models can harness the unique power of capital markets, but also derail them in disastrous ways if their social context is ignored. A sociology of climate risk will, we hope, contribute to bring about the former rather than the latter.

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