The legal foundations for a civic financial system

Time is running out for humanity to reduce carbon dioxide (CO2) emissions in order to avoid catastrophic climate change yet the financial system continues to enable unsustainable levels of CO2 emissions in many carbon-intensive sectors, including the fossil fuel industry. Law can help govern this problem but effective legal interventions need to take into account the complexity of the financial system. The overarching objective of the Civic Finance project is to develop a complexity-informed theory of law and finance that can underpin the legal foundations of a civic financial system; in particular, a financial system that refrains from enabling unsustainable levels of CO2 emissions in the fossil fuel industry. To do that, the project will develop a theoretical framework that synthesises institutionalist theories of law and finance with studies of complexity in the financial system. It will then combine doctrinal and socio-legal methodologies to collect empirical data on the legal rules underpinning the European financial system’s continued support of unsustainable levels of CO2 emissions in the fossil fuel industry. To test the effectiveness of these legal rules, the project will develop an agent-based model of the European financial system that will simulate their potential impact on CO2 emissions in the fossil fuel industry. The project will then integrate this simulation data and the empirical data into the theoretical framework to develop a complexity-informed theory of law and finance. Building on institutionalist theories of law and finance, the project argues for the utility of complexity-sensitive methods to study how law shapes complex financial systems. In the longer term, the project will revolutionise how European lawmakers, financial institutions, and civil society organisations use the law to mitigate CO2 emissions enabled by the financial system.