The Wall Street Consensus in pandemic times: what does it mean for climate-aligned development?

Abstract

The COVID-19 pandemic has reinforced the dominance of what Daniela Gabor calls the Wall Street Consensus (WSC) as the hegemonic approach to sustainable development. Public commitments to "green recoveries" and climate resilience, growing fiscal deficits in the Global South, and new central bank emergency liquidity measures have created more space for WSC policies. We examine the key WSC climate policy toolsclimate infrastructure as an asset class, climate rescuer of last resort, disclosure of climate-related financial risks and carbon pricingand argue that these will increase financial vulnerability in the Global South while doing little to achieve climate-aligned development. RÉSUMÉLa pandémie de COVID-19 a renforcé la prééminence de ce que Daniela Gabor appelle le Consensus de Wall Street (CWS) en tant que stratégie de développement durable. L'engagement public à soutenir la "régénérations verte" et la résilience climatique, le déficit fiscal croissant des pays du Sud, et les nouvelles mesures d'urgence de la banque centrale pour les liquidités ont créé plus d'espace pour les stratégies du CWS. Nous examinons les outils clés du CWS à l'usage de la politique sur le climatl'infrastructure du climat comme actif, les derniers recours pour un sauvetage du climat, l'indexation des risques financiers liés au climat et du prix du carboneet démontrons que ceux-ci augmenteront la vulnérabilité financière des pays du Sud, tout en accomplissant peu en termes de développement responsable visà-vis du climat.

The Wall Street Consensus

“…By controlling the grammar of green finance, they can apply the 'green' or 'sustainable' label to asset classes that have a negative environmental impact, a greenwashing exercise that effectively waters down climate regulations in order to protect profits. In doing so, investors are strategically adjusting to central banks' turn to climate policies (Dafermos et al, 2021). Before the COVID-19 pandemic, central banks in the Network for Greening the Financial System had argued that climate risks were financial stability risks, and began the process of designing a climate regulatory regime that seeks to apply the (shades of) green/dirty to the entire universe of assets -bonds, loans, equity -held by banks, institutional investors and asset managers.…”

“…Since market-based finance is more systemically fragile than traditional bank-based systems, the WSC assigns a triple de-risking role to central banks: in bond markets and currency markets as market-makers of last resort (Musthaq, 2020) and, forced by the inevitable consequences of greenwashing, as climate rescuers of last resort, for assets left devalued by extreme climate events (Bolton et al, 2020;Dafermos et al, 2021). Critically, the politics of central bank de-risking varies across asset classes.…”

“…Rising public debt across poor and emerging countries, the global push for green recoveries and central banks' turn to de-risking currencies and sovereign bonds via unconventional liquidity operations combined to increase the attractiveness of the WSC paradigm (see Dimakou et al, 2020). The WSC took a distinctive climate turn, Dafermos et al (2021) argue, to advocate for climate infrastructure as an asset class, the role of climate rescuer of last resort, disclosure of climate-related financial risks and carbon pricing.…”

“…To fill the gap, this article draws on a critical macro-finance approach concerned with the co-evolution of global finance and the macroinstitutions of the state (Gabor, 2020). In the age of institutional investors and asset managers that move capital across border via portfolio flows, which the article terms 'the portfolio glut', (subordinated) financialization is no longer confined to the balance sheet of banks and non-financial corporations (Bortz and Kaltenbrunner, 2018), but becomes a statemediated project of constructing new development asset classes (Dafermos et al, 2020(Dafermos et al, , 2021Musthaq, 2020) to attract the growing portfolio glut.…”

“…Indeed, before the COVID-19 pandemic, the pace of new PPP infrastructure investment lagged behind the ambitions of the WSC promoters, highlighting the complexity of the institutional transformation required to scale-up the production of de-risked development asset classes. Yet the macro-financial processes set in motion by the COVID-19 pandemic have renewed the WSC's political momentum (Dafermos et al, 2021). The UN-supported Global Investors for Sustainable Development Alliance (2020) called for 'reinvigorating PPPs to a degree not experienced since World War II -and a degree that has perhaps never been seen in peacetime'.…”