Finance Must Be Defended: Cybernetics, Neoliberalism and Environmental, Social, and Governance (ESG)

Abstract

In the last decade, interest in environmental, social, and governance (ESG) surged dramatically. This article contends that corporate perspectives on ESG—as managing risk and/or returning expected value—are insufficient to account for developments presently unfolding in the ESG finance space. There, novel derivative tools are being developed and deployed, promising to flip the sustainability market on its head. Unlike other sustainability metrics or strategies, ESG derivatives do not attempt to price a given firm’s risk profile in light of the environment, but rather seek to price the risk profile of environmental catastrophe itself. What this translocation of risk prophesies is the direct application of financial engineering to the climate. In this article, re-visiting the late work of Friedrich Hayek and tracing his legacy in Michel Foucault’s lectures on neoliberalism frames my argument that the modern financial system from which these derivatives spring is best understood as a cybernetic one. Cybernetic systems are ones that endeavor to negate entropy and maintain organization by means of information feedback loop-based learning; in finance, this takes the form of Hayekian price discovery. With ESG derivatives, the system of cybernetic finance is presently setting to work converting climate uncertainty into pricing efficiency. Because derivatives such as these represent the polity’s most advanced media for the meaningful sensation of threats, what emerges about the environment from the trade of these products will soon be fed backwards as a powerful set of inputs to governance, shaping how the climate is brought into representation and what responses to its associated crises are possible.