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Bracking, S. (2019). Financialisation, climate finance and the calculative challenges of managing environmental
change. Antipode: a radical journal of geography, 51(3), 709-729. https://doi.org/10.1111/anti.12510

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Download date: 25. Jul. 2022

 Financialisation, Climate Finance, and the Calculative Challenges of Managing
Environmental Change

Sarah Bracking
Department of Geography
King’s College London
London, UK
[email protected]

Abstract
This article describes the emergent and unstable dispositif of climate finance that is being
built from iterative experiments in climate finance provision. The article provides a
periodisation of different phases of climate finance from the 1990s onward using examples
from REDD+, ecosystem services, the Green Climate Fund, green bonds, and insurance-
based derivatives, and connects this periodisation to broader processes of financialisation. It
analyses how climate finance projects incorporate competing systems of accounting
denominated in carbon, natural capital, “green-ness”, insurance risk and internationally
transferred mitigation outcomes. The article argues that many accounting units are evident in
current climate finance products, each loosely derived from a different phase in this
periodisation. However, experiments in calculating time and value in climate finance
continue, and although risk is being increasingly used to correlate different denominators of
value, an overall solution for how climate change is to be accounted for in financial
interventions remains elusive.

Keywords
valuation, climate finance, financialisation, dispositif, climate change, risk and insurance

Introduction

By managing what gets measured, we can break the Tragedy of the Horizon. (Mark
Carney, Governor of the Bank of England 2015)

Climate finance has taken an increasing role in climate change governance since the 1990s.
This reflects and has been partly caused by processes of financialisation in the global
economy more broadly, which have placed finance more centrally in technologies of human
governance. This paper contributes to the literature on this relationship between finance and
the management of climate change within the context of financialisation, focussing on the
period from the late 1990s, where present financial investments and returns are increasingly
generated from a risk-based orientation to expectations of the future (cf. Johnson 2014).
During this period, the role of finance in nature-society relations has expanded, which has
been explored in human, economic and financial geography and related disciplines (Castree
2010; Christophers 2016; Mawdsley 2018; Robertson 2012). These literatures are now vast,
and cover how nature and finance are increasingly entrained in projects and practices of
conservation (Sullivan 2013a, 2013b); environment (Cooper 2010; Loftus and March 2015)
and specific sectors such as weather management (Johnson 2014; Pryke 2007); infrastructure
(Hildyard 2016), oil (Labban 2010 2014) or development interventions (Mawdsley 2018).
There have also been important caveats as to whether the actual generation of revenue
streams from financialised assets has been as great as financialisation theories have
suggested. For example, Brockington and Duffy (2010) noted their remarkable absence in
conservation (see also Dempsey 2017). The purpose here is to further apply the literature on
financialisation, risk and value to a better understanding of climate finance.
This article will review climate finance and its constituent products and practices,
how they are conceived and delivered and by whom, and how these have changed in relation
to broad phases of financialisation. The second section reviews theories of financialisation in
relation to climate finance instruments and markets and organises the history of climate
finance into a loose typology to illustrate its reciprocal relationship to the global economy.
The third section explores emergent institutional and organisational possibilities with
attention to how hybrid products are created within several governance nodes. These multiple
actors then both confound and build standardisations and commensurabilities in the
calculation of value. The final section before the conclusion then uses examples of recent
insurance-based products to explore how they correlate together different forms of
calculation, including in respect to time.
The paper argues that the concept of risk, as a “technology of valuation” (Bracking et
al. 2014) in climate finance, has become the central parameter in the valuation process,
helping to frame, organise and compute a climate finance product with an assigned price.i
Representations and imaginations of risk have been integral to capitalism for centuries, as it
enables uncertainty to be rendered calculable (De Goede and Randalls 2009), and imposes
“upon its subjects the technique of foreseeability” (O’Malley 2003: 278; see also O’Malley
2004). This more recently established salience of risk as an organising concept in climate
finance has occurred both because of this accumulated technology, and also because risk can
be used as a calculative common denominator within a matrix of other social and ecological
measured units, as is illustrated below. Risk has utility in broader valuation processes because
it is recognisable and amenable to calculation for financiers who provide insurance and debt
products in a way that social or ecological impacts, or indeed climate change, are not: risk
benefits from being already central to the lexicon of finance capitalism.
The case studies presented here are representative of pioneer experiments in climate
finance in which differing valuation norms and practices are jostling for dominance. There is
an increasing use of risk and insurance in the delivery of climate finance found in these
examples. However, the terrain remains experimental and there are huge challenges for
financiers in applying risk and insurance valuation technologies to climate finance, not least
in relation to who will generate demand for products and who will pay for them. To describe
and begin to analyse how climate finance is emerging as a governance technology for
managing climate change the article employs the Foucauldian concept of a dispositif as a type
of assemblage that iteratively combines heterogeneous elements of living and non-living
things in a manner which generates their pacification, framing and therefore the governance
of components of the dispositif as revenue generating products (Legg 2011: 131; see
Fredriksen 2015).

Phases in the Financialisation of Nature and Climate

The most common understanding of financialisation is where finance becomes increasingly
dominant in the economy in relation to production, with financial activities generating more
value over time in comparison to trade and commodity transactions (Arrighi 1994;
Christophers 2012: 273-275; Krippner 2004: 14; Krippner 2005; Labban 2010: 545;
Stockhammer 2004). While the empirical hypothesis of the increasing global scale and scope
of financialisation has been questioned by Christophers (2012, 2015) as has its
epistemological and ontological dimensions (Christophers 2015), it is possible to show
empirically that at an aggregate scale, both a greater quantity of interest-bearing capital is
produced over time, and a greater proportion of capital becomes interest-bearing (Bracking
2016: 20-41). However, these observations at macro scale do not explain how greater
interest-bearing value is produced in relation to a particular commodity such as climate.
The financialisation process of nature-based assets, in which “climate” was more
latterly added, can be dated from the debt-for-environment swaps of the 1980s, and occurs
when a previously unpriced asset or service is entrained, or a notional one framed, and an
income stream created from its existence in place, even if that place is virtual. These new
products developed in roughly four periods, although these are not strictly linear: from the
Kyoto Protocol and subsequent experiments in carbon accounting, carbon markets and
certified emissions reductions (CERs) from the 1990s-2000s, with CERs hitting their highest
prices in the mid-2000s (Phase I); to financialisation by ecosystem services, REDD+ forest
conservation and biodiversity offsets from the late 1990s (Phase II); interventions by capital
markets proper, through green bonds, derivatives, indexes and synthetics from the 2000s
onward (Phase III); to index insurance, risk-based multi-trigger products, and insurance-
linked securities from 2010s onward, indicating a reinsurance regime of tradable derivatives
(Phase IV). While crop insurance has a longer history, the Phase III-IV here can be isolated
as recent in the sense that they are embedded in the more modern practise of modelling
without any specific requirement to link payments to individual insurance clients. In all
periods, financialised nature has been framed, abstracted and pacified as providing
“services”, or even merely “experiences” or “mitigations”, free to circulate as liquid paper
(Büscher 2013; Igoe 2013; Sullivan 2013a). These phases are important to isolate, not
because they are mutually exclusive – as each merges and morphs into the next and borrows
calculative technologies from former phases – but because each contributes components to
the contemporary climate finance dispositif. These components can be narrative framings,
organisational forms, valuation technologies or calculative devices – where a calculative
device is understood as a procedure, spreadsheet, pro forma, equation, or evaluative practice
(see Bracking et al. 2014). These combine both within individual products and in the overall,
but constantly changing, climate finance dispositif.
Financialisation “Phase I” was intimately bound up with the commercialisation of
carbon as a unit of account, and despite the rise and then spectacular fall of the European
Emissions Trading System from 2005 to date, carbon remains central to the contemporary
imaginary of the financialisaton of climate. By 2018, there were 51 carbon pricing initiatives
ongoing, including 25 emissions trading systems (ETSs) and 26 carbon taxes covering about
20 percent of global greenhouse gas (GHG) emissions to a combined value of US$82 billion
(World Bank 2018: 10). Provision was made for an international carbon market in Article 6
of the Paris Agreement in 2015. We return to the significance of carbon below. In
financialisation “Phase II” ecosystem services then emerged as the “vanguard of the
neoliberalisation of nature” (Dempsey and Robertson 2012: 759). For example, in Constanza
et al.’s (1997: 255) seminal piece they were valued at $33 trillion for the Earth, a figure
which took ecosystem services as a concept from relative obscurity in ecological economics,
to the forefront of the neoliberal counterrevolution to The Limits to Growth period (Nelson
2014, 2015). The concept took further momentum from the Millennium Ecosystem
Assessment (MEA) project of 2005 supported by the UNEP and Global Environmental
Facility; by endorsement by the US EPA in 2009; and in the European “Economics of
Ecosystems and Biodiversity” (TEEB) initiative from 2008 to 2010. Current ecosystem
service markets are either compliance or voluntary markets and are often commercially
divided into the three domains of water, carbon and biodiversity, with recent explorations
into a more generic natural capital accounting, which can combine these elements into hybrid
calculations and payment structures. Payments for ecosystem services (PES) schemes
numbered over 550 globally in 2018, representing an estimated US$36-42 billion in annual
transactions but remain difficult to grow (Salzman 2018), not least due to problems in the
calculability of value.
Financialisation “Phase III” draws in capital markets proper into environment,
conservation and climate management. Environment “theme” bonds emerged as a new fixed
income asset class from the 2000s, with the City of San Francisco issuing a solar bond in
2001, and the European Investment Bank and World Bank following with climate awareness
bonds and green bonds in 2007 and 2008 respectively. The “green” of the title signals de-
carbonisation efforts to issuers, institutional investors and governments in either carbon
mitigation or adaptation (Kidney et al. 2010: 219). Environmental theme bonds are designed
to attract institutional capital by shifting the risk calculation from the projects or activities to
be invested in, to the risk profile of the issuer, thus arguably reducing investment risk
artificially and generating lower cost financing for the projects invested in (Christophers
2016: 15). Market makers note that theme bonds operate like conventional debt instruments,
with similar calculations of risk and credit rating. However, by using “structured note
technology” dividends to investors can be actioned against a wide variety of contracted
outcomes, such as the performance of an index of “green companies” or a calculation of
achieved emissions reductions (Kidney et al. 2010: 220; Mathews and Kidney 2010).
Whereas ecosystem services were largely payments made to custodians against quality
control criteria, dividends here are financialised in respect of pollution-abatement
performances. Critically though, it is only the financial returns of the bond that are legally
justiciable. While growing, environmental theme bonds remain an extremely small proportion
of equity market volumes overall, representing less than 1% of holdings by global
institutional investors, a mere drop in the US$100 trillion pool under management by
institutional investors and sovereign wealth funds (International Monetary Fund 2016: 6).
The growth of green bonds in Africa is compromised because they are essentially a debt
instrument and credit ratings are poor in most cases. In order to be viable, the green bond
must thus be either highly profitable, or enjoy some form of public subsidy, protection or
liability insurance. However, these numbers still represent large financial resources as
compared to other types of public climate finance in Africa (Bracking 2015: 10; Christophers
2016: 14).
Financialisation “Phase IV” are interest bearing assets framed in more abstract
products which refer to nature, humans and non-humans as their referent object, modelled in
an aggregated or systemic sense. These would include catastrophe and weather bonds,
insurance-linked securities denominated in weather systems, index insurance, multi-peril
insurance, and some composite green bonds which are denominated in resilience. Interesting
here is that the unit on which a derivative income stream is raised is not a bounded asset or
thing, but a complex system, ecology, environment or modelled concept, such as
vulnerability or resilience. As Johnson (2014: 157) summarised, “[as] the provision of
catastrophe insurance has been securitized … place-bound vulnerabilities are rendered into an
exploitable, diversifying asset class for financial capital”, and since her seminal analysis of
catastrophe bonds a further range of products encompassing total systems have emerged.
Catastrophe bonds are a sub-category of the wider asset class called insurance-linked
securities (ILS), and represent a convergence of the reinsurance and capital markets begun in
the mid-1990s (Culp 2002; World Economic Forum 2008), totalling $40 billion in bonds
issued between 1997 and 2011 (Johnson 2014: 157). Within the public domain, the
establishment of the InsuResilience Global Partnership for Climate and Disaster Risk Finance
and Insurance Solutions at the UN Climate Conference COP23 in Bonn 2017, and its
subsequent issuance of a global index insurance facility (GIIF), an umbrella for over 1.5
million insurance contracts, and mobilisation of its InsuResilience Solutions Fund (ISF),
represent the current cutting edge of valuation and product development in applying risk and
insurance to the governance of climate change, weather and disaster risk (InsuResilience
Global Partnership 2018).
Insurance-linked securities, denominated in risk, seem ideally placed to correlate the
other earlier product iterations in the overall dipositif of financialised nature and its
governance, since carbon, natural capital and multivariate social and ecological outcomes-
based accounting systems can all be made commensurate by risk and its modelled pay-out
algorithms which form the financial data of a marketed product. This outcome would
facilitate further governance by finance in that risk is a designation calculated within banks
and approved by ratings agencies within a modelled set of financial variables and legal rights
of different tiers or tranches of shareholders. Since few Phase I-III climate financed products
are currently traded in secondary markets, excepting some CERs certificates, risk can act as
an effective calibrator, or mediator of the rates of profit extracted when they are combined in
portfolios. Thus, in financialised climate finance, value theory could usefully reject its
insistence on ideas of fictive commodities and speculation in favour of understanding that the
financial products call variously on different calculative variables in order to calibrate their
value. These calculative variables and devices are nonetheless combined to generate legally
guaranteed income streams in the present, with risk acting as an organising denominator or
signifier (rather than risk being a source of value per se, as Christophers [2016] has argued).
The historiography above suggests that risk-denominated products are playing an
increasing role in climate finance as the dispositif unfolds in reciprocal relation to
financialisation as a global process. In the next section, some representative hybrids from the
current financialised landscape of climate finance will be presented to test, analyse and
interpret this hypothesis.

The Climate Finance Dispositif

The phases of financialisation outlined above have produced a contemporary climate finance
landscape of complex entanglements; differing types of institutional nodes or sites, and
different climate finance products. Dispositif is a useful concept to mobilise in understanding
contemporary climate finance as it embraces this emergence, complexity and fluidity. Also,
unlike its close relative the “assemblage”, a dispositif is generally used to denote an
arrangement that is slightly more settled, temporarily at least, in so far as it can apply power
over subjects (Agamben 2009). Thus Foucault (1980: 194) used dispositif to apply to:

a thoroughly heterogeneous set consisting of discourses, institutions, architectural

forms, regulatory decisions, laws, administrative measures, scientific statements,
philosophical, moral, and philanthropic propositions … [and] the network that can be
established between these elements.

Although Foucault’s concern was with diverse forms and means of government per se,
climate finance is a mobilisation of resources intended to contribute to governing climate
change and looks remarkably similar: it is an emergent set of loose things and practices
joined by governing nodes in a system of correlation, with certain financial forms splitting,
morphing or folding together. Indeed, Braun (2014a: 51) recently and persuasively mobilised
this term to describe how a loose, ad hoc government of this type, without an overarching
sovereign but only a system of correlation, can characterise urban governance in the context
of the “crisis” of climate change.
The concept of an assemblage could also be used to interpret how climate finance
attempts to order people, things, nature and more-than-human species, understood as an
arrangement of things “which are simultaneously human and nonhuman, social and technical,
textual and material – from which action springs” (MacKenzie et al. 2007: 14-15). An
assemblage implies a capacity to act through the coming together of things, where this
coming together of things is “a necessary and prior condition for any action to occur” (Braun
2008: 671; Dewsbury 2011; Fredriksen and Sullivan 2015: 11-13). The closely related
concept of a dispositif, sometimes viewed as a sub-group or type of assemblage, is preferred
here though, as climate finance involves relationships of power between holders and
entrained subjects, and power provides the basis of relationships of governance, the vital
element of Foucault’s approach. The UNFCCC or the Green Climate Fund, which have
sufficient legitimacy to authorise the application of power over subjects (see Fredriksen 2015:
18; see also Legg 2011) can be understood as governance nodes within the climate finance
dispositif.
In climate finance, none of the chronological phases of product and governance
development entirely ended with the beginning of the next, such that the overall structure of
climate finance takes on the form of a complex, entangled dispositif linking nodal sites which
emerged from within each regime: the UNFCCC and the Clean Development Mechanism
from Phase I; regulators, governments and INGOs validators (Phase II); development and
green banks, international financial institutions (IFIs), companies and capital markets (Phase
III); and more latterly insurance and reinsurance providers, the global Green Climate Fund,
GIFF, and Africa Risk Capacity (Phase IV). These institutional governance nodes now
correlate to generate hybrid products, both at the level of joint or multiple issuing and
underwriting, and by bringing their separate valuation and governance technologies together
in complex programmes and products. Most actual products reflect this coming together by
incorporating and layering different types of calculative device: carbon accounting, green-
ness, socio-economic or wellbeing indicators, ecosystem service, and more latterly risk and
insurance-based measures.
To understand better the elements of the current dispositif of climate finance a time
slice sample of climate finance projects approved in the private green bond market and
publically-underwritten GCF in 2016 was analysed. This was not an exhaustive search of all
climate related products, as this would be too onerous for the purposes of this paper, but more
the selection of a sample to represent the trends of governance and product organisation
whose size was chosen to correspond to saturation in the patterns observed, akin to sample
size rules in qualitative research. The overall objective was not to establish size or scope in
each market, but to explore the “comings together” of calculative systems from the phases of
climate finance, as outlined above. Thus, the research for this section consisted of document
analysis of the total population of 35 Green Climate Fund projects approved to November
2016 and a desk study of the universe of green bonds approved during 2016 in global
markets. Within this overall population, projects combining several calculative techniques to
establish value and price are the norm. The examples discussed below are representative of
the population, in that they combine different valuation units of account, techniques and
calculative devices to produce aggregated financial valuations. However, they are also chosen
for further discussion, because they do this in thick nodes, and in innovative or hybrid ways.

Green Climate Fund

The Green Climate Fund was established in 2010 under the United Nations Framework
Convention on Climate Change (UNFCCC) as its principal vehicle for providing climate
finance at scale, planned to reach US$100 billion in financing by 2020. As of August 2018, it
had 74 projects representing US$3.5 billion in committed financing. It has proved a
repository for combinations of calculative techniques from all the prior phases of climate
finance, not least because many of its early projects were recycled iterations of prior projects
sponsored by development finance institutions. Also, the calculative challenges of payment
by results from the REDD+ schemes (dated from 2008) were brought to the GCF in 2015-16
for refinancing requests. All GCF projects have also inherited a demand, embedded in the
application pro forma, to explain their worth in carbon metrics and in “green-ness” expressed
in socio and ecological criteria. Thus, in the Green Climate Fund project approval
documentation, two basic indicators of value are used to represent two generic results areas:
“reduced vulnerability or increased resilience” for adaptation projects and/or “avoided
emissions in tonnes of carbon equivalent” for mitigation and mixed projects. In the carbon
emissions avoided metric, applicants often include a cost calculation to the GCF for each
tonne, mostly calculated using the UNFCCC CDM system tool for carbon accounting
(another borrowed technology from the wider dispositif). As of August 2018, the 74 GCF
projects were calculated to benefit 217 million beneficiaries who would emerge with
“increased resilience”, while 1.3 billion tonnes of CO2 equivalent would be “avoided” (GCF
2018), at various calculated costs per tonne per project. This had increased impressively from
its February 2017 figures of 103 million beneficiaries, and 183 million tonnes of emissions
avoided from only 35 projects (GCF 2016a). By February 2017, the GCF had committed 52
per cent of its finances to the private sector, 72 per cent through its “international access
modality” and 47 per cent as grants (GCF 2016a: 6). It is this cohort of projects to the year
end of 2016 that is the dataset here.
The international access mode has allowed traditional development finance
institutions to redesign their portfolios to access climate finance, by invoking the poor and
needy within the new operational concept of resilience at a time when generic development
finance is constrained. For example, the UNDP appears to be refinancing much of its work
using its international implementing entity status at the GCF by successfully transferring pre
–existing development projects into the climate finance domain. The GCF awarded the
UNDP US$38 million to increase the resilience of approximately 2 million people (only
770,500 directly) in Sri Lanka where the beneficiaries are “highly vulnerable, poor, conflict-
affected smallholder farmers in the Dry Zone of the country” (GCF 2016b: 6). The
“adaptation interventions” consist of installing or improving irrigation systems, decentralised
water supply, early warning systems, and upstream watershed restoration totalling $29.5
million, leaving $8.5 million for planning and knowledge capacity building (GCF 2016b: 7).
The UNDP also achieved a $29.5 million grant in respect to resilience in Vietnam, claiming
to reach 30 million beneficiaries, with 1.9 million equivalent tonnes of CO2 avoided (GCF
2016c). Meanwhile, and also in the international access modality, the World Bank is the
implementing entity for a project worth just under $69 million in the Aral Sea Basin for on
lending through a regional climate investment facility, which represents a “scaling up” of its
former project in the area, the Climate Adaptation and Mitigation Program for Aral Sea Basin
(CAMP4ASB). The facility will fund “the poorest and most climate vulnerable rural
communities” with $15 million to be spent on goods and public works and the remaining $4
million on various consulting services (GCF 2016d: 10).
These projects and similar ones awarded to international development banksii show a
tendency to calculate those beneficially affected by using population counts in the territory of
intervention as a proxy, while depicting them as suffering multiple deprivations. These counts
then signify the socio-economic worth of the project. However, the banks also spend
relatively large proportions of funds on planning and management, and their own cost
recovery and indirect capacity building. For example, in the Aral Sea Basin, the World Bank
calculates its own fees on a “full cost recovery” basis under the per cent “cap” allowed for by
the GCF, at US$510,000 (GCF 2016e: 11). Meanwhile, a US$41 million grant approved by
the GCF for the UNDP in October 2016 to support the implementation of the UNDP led
REDD+ approved “Action Plan” in Ecuador is particularly policy focussed (GCF 2016e).
This project begins by admitting that the full financialisation envisaged for results-based
payments (RBPs) for forest conservation in Ecuador became stalled at the UNFCCC over
issues of “price, volumes of emissions reduction, availability of RBP funds, [and] conditions
of access” (GCF 2016e: 56), such that RBPs have a “still-uncertain future” (GCF 2016: 15).
However, it then commits over US$9.2 million for “incentives for the sustainable production
transition period’, which is presumably for affected persons, while the rest (approximately
US$31.8 million) appears to be solely for management and planning, or the “Priming [of]
Financial and Land-Use Planning Instruments” in the project’s title, supporting the work of
the UNDP as accredited entity, and the Ministry of Environment as national accredited
authority (GCF 2016e). Despite its emphasis on planning, the project still claims to be
“worth” 15 million “anticipated tonnes of CO2 equivalent avoided” in carbon sequestration
and of benefit to over 1.1 million people in the “intervention area” (GCF 2016f).
This institution building is significant in Ecuador but has global implications for both
climate finance directly and the dispositif emerging. Here GCF funding is said to “maintain
the momentum of REDD+” in Ecuador “until [global] conditions for RBPs are in place”, by
funding the accreditation of the National Entity in charge of the financial mechanism, the
National Forest Monitoring System (NFMS) and safeguard information system (SIS), all
prerequisites for qualification for RBPs under the Warsaw Framework (GCF 2016e: 43-44).
The support for Ecuador will then “build confidence” in the emerging climate finance
architecture, the UNFCCC system of RBPs, and the GCF’s performance management
framework (PMF) “channelled through the UNFCCC process” (GCF 2016e: 48, 63). In turn,
the UNDP is positioning itself as “assisting” the GCF in implementing its “Initial Logic
Model and PMF for REDD and RBPs”, and “confidence building” where RBPs have not yet
materialised (GCF 2016e: 63, 48). It also claims to contribute to the GCF’s policy on results-
based payments and milestones-based financing (Green Climate Fund 2016). Thus, a
traditional development finance institution (DFI) is partnering with a new node, the GCF, to
promote a hybrid financialised product (in that REDD+ entails debt financing and interest-
bearing returns) which largely supports institution building to facilitate RBPs reminiscent of
the ecological services approach, while also calculating for carbon and “resilience” (a proxy
for human development). This project qualifies as a Phase IV product (see above) because a
donor or private sector firm is the planned purchaser of the derivative income streams from
the unit of preserved, pacified forest, supplied by the domestic government as interest on the
REDD+ loan, which is a fully financialised relationship. But of interest to this analysis is that
it also includes calculations of worth, value and price from all the preceding phases – while
problems of pricing have prevented the full financialisation envisaged.
Challenges to the full financialisation of REDD+ internationally also prompted a
hybrid product in October 2016 from another DFI – the International Finance Corporation
(IFC) – this time partnering with the private sector in the green bond market, illustrating
again a hybrid of Phases I (carbon accounting), II (ecosystem service accounting), III (green-
ness accounting in bond issuance), and IV (carbon offset units available for trading). Here the
IFC listed a US$152 million “first-of-its-kind” forestry bond on the London Stock Exchange.
Uniquely to date, the IFC bond allows investors to be paid in cash or carbon credits, with the
latter generated from the Kasigau Corridor project in East Kenya, or a combination of the
two, where the bond has a five-year maturity and a coupon of 1.546% interest paid. The
Kasigau Corridor is one of the largest REDD+ projects globally, expected to offset 1.4
million tonnes of carbon emissions annually for 30 years, with carbon credits priced at US$5
per credit. Coupons paid in credits can either be retired to offset the purchasers” emissions or
sold on the offset market. However, significantly the IFC is underwriting the issue, assisted
by Bank of America Merrill Lynch, BNP Paribas and JP Morgan as placement agents, and is
the guaranteed purchaser of the carbon credits from Kasigau, before distributing them to
investors when due. Also, BHP Billiton is providing a “liquidity support mechanism, which
will see it buy credits from IFC should investors opt to be paid in cash” (Environmental
Finance 2016a). Investors will opt for cash when the carbon credits are passed on by the IFC
at a price lower than the bond’s guaranteed 1.546% cash return. In other words, BHP Billiton,
arguably a major polluter, is guaranteed a low ceiling price on Kasigau carbon credits – less
than 1.546%.
In the Kasigau forest bond, which is a precursor for others where REDD+ projects
will be aggregated to provide scale, the IFC is effectively acting as an underwriter to the first
tranche investors who already have a guaranteed 1.546% return on their income for five
years, and potentially have a higher income from the carbon credits. In fact, the benefits to
investors and banks are clear. Investors have an opportunity to buy carbon offsets in the
future, a spot position in relation to carbon, which, if the market recovers during the term,
may pay more than the IFC-guaranteed US$5 per credit, and a swap between the two
positions – cash and CERs. The banks involved will have collected management service fees
and may also own some first tranche shares themselves or enjoy placement fees from the
investors. Investors are thus linked to a nature based financialised commodity (carbon offset
unit) and a cash return with arguably very little risk due to the IFC underwriting role: a forest
bond from IFC could not be allowed to fail as it may affect its AAA rating.
The Kasigau Bond illustrates the possibility of a green bond with multiple underlying
REDD+ assets, where the oversight function for REDD+ assets has moved from the
UNFCCC (or the UNDP as in Ecuador above) to the private sector, but a bond in which
“public sector” nodes such as the GCF could still invest. This would move the calculation of
the product’s worth from a principle denomination in carbon (in its underlying REDD+
assets), to one of commercial green-ness at the level of the bond as a whole. This appears to
be a more abstract and nebulous valuation, except that the underlying assets are the same, and
the income streams remain the interest repayments. The GCF would then be acting as one
node of the overall dispositif in correlation to the UNFCCC acting as the core governance
node, the private sector as bond manager, with other thick nodes in implementing agencies,
such as UNDP. Indeed, the links between REDD+, the GCF and green bonds are already
correlated together in documents at the UNFCCC, particularly following the Warsaw
Agreement (UNFCCC 2013) and the COP21 Paris Agreement (UNFCCC 2015) such that the
search for product commensurability has begun to create these aggregated “canopy” products.
Canopy products could contain various forms of climate finance component products,
including green bonds, PES schemes, REDD+ projects or groups of CERs.

The Green Climate Fund, Post-Paris Agreement 2015

The Paris Agreement of 2015 marked a watershed in organisational terms to potentially
reinvigorate the climate finance market, although the subsequent actual disbursements of the
Green Climate Fund have proved disappointing. However, it did serve to galvanise new
efforts in valuation technologies. Financiers employed to invest in climate finance have found
in the Paris Agreement principally three concepts with potential as calculative entities for
establishing commensurability between products, to facilitate commercialisation and public
underwriting of the climate finance market. These contenders for the role of common
denominators, or at least organising rationalities, are the (Intended) Nationally Determined
Contributions (INDCs or just NDCs) which can be expressed as a group of different projects;
the Nationally Appropriate Mitigation Actions (NAMAs) which group projects in an
implementation mechanism; and the internationally transferred mitigation outcomes (ITMOs)
which are the most likely unit to facilitate financialisation as they are notional and fluid. Each
of these can in turn be made commensurate using a carbon accounting device at a secondary
level of calculation, although this is not a necessary step if mitigation outcomes become
directly tradable, such as in green bonds that have collected different ecosystem, adaptation
and mitigation services together and then registered themselves as a financialised ITMO unit.
The tradability of ITMOs may seem a long way off, but text in the Paris Agreement, Article
6, certainly suggests that the commensurability of these units was imagined by participants to
potentially link various carbon denominated markets. A “mechanism” and “body” is
promised to regulate and authorise such trade (UNFCCC 2015: 5).iii Also, DFIs are
developing measurement standards for calculations of emission reductions avoided and rules
for measurement, verification and reporting (MRV) for NAMAs, such as the UNDP in its
NAMA Financial Requirements and Mechanisms guide. An international accounting
standard for ITMOs would cement this possibility. But in the meantime, INDCs have already
become a “significant” ratings driver, according to Moody’s, who have incorporated the
materiality of the COP21 agreement into their credit ratings: as climate affects asset values
across sectors, the intentions of INDCs affect corporate and sovereign credit ratings
(Moody’s 2016).
The private sector is a powerful advocate of developing these financial and calculative
systems which would add to our product specific valuations of carbon emissions avoided,
“green” and “resilience” and further facilitate aggregation of climate finance products
emerging from the dispositif. For example, Junji Hatano, a Tokyo-based chairman of
consultancy Carbon Partners Asiatica, wrote in 2016 that green bonds could accelerate
implementation of the Paris Agreement, by financing NAMAs (Environmental Finance
2016b). According to Hatano, NDCs are seen in the Warsaw Agreement as “high-level policy
directions”, while NAMAs are the “ideal implementation mechanism for NDCs”iv welcomed
as the “missing link” to green bonds (Hatano, cited by Environmental Finance 2016b 2, citing
UNFCCC 2013). He writes of two models for this missing link. First, green bonds providing
funds to institutions that on-lend for NAMAs (largely an extension of current practice).
Second, direct linkage between green bonds and NAMAs in a “NAMA covered green bond”
(Environmental Finance 2016b: 2). Because of the expected poor credit rating of the issuer –
maybe a southern municipality – investors would need “protection”, which this banker
proposes in the collateralisation of cashflows, or by guarantee or country risk insurance
provided by a public entity, and/or by much higher interest rate levels charged to the
underlying portfolio companies (who take on debt) than those paid out in investor coupons
(Environmental Finance 2016b).
 However, given this spread, this fund model may perversely restrict the growth of
green enterprises in the Global South because they are the main source of collateral that
underwrites the risk, and will thus need to be extremely profitable to attract international
funding. Potentially they risk their returns disappearing to the international investors, whose
income may be guaranteed by the international public sector in any case, although this
guarantee will only trigger when some successful companies in the portfolio can’t be
squeezed enough to cover the losses of others. Financiers invariably seek regulatory support
to guarantee returns, such as tax relief, return enhancement, refinancing support, underwriting
or government guarantee (Kidney et al. 2010: 231), and these new complex products are no
exception, as they invariably involve multi-layered tranche-specific investor guarantees,
created to ensure extremely low risk, with high guaranteed returns for privileged investors
paid for by public subsidy and a high extraction from underlying companies. Thus, when the
calculative concepts of the Paris Agreement are combined with the valuation norms of the
preceding phases of climate finance, returns to investors emerge salient, with risk
conditioning the distribution of reward among agents.

Calculation in Environmental and Climate Finance

Thus far the examples above have combined calculations of carbon and green-ness and are
embedded in the public regulatory system through the GCF, REDD+ or potentially by the
institutional regulators promised by the Paris Agreement 2015. Carbon accounting remains
the most advanced form of environmental calculation to date, with established standards and
forms that NAMAs, ecosystem services, green bonds and insurance products do not have. For
example, in a landmark case in America the Chicago-based 7th Circuit US Court of Appeals
in a unanimous decision on 8 August 2016, rejected an industry-backed lawsuit that argued
that carbon accounting was “irredeemably flawed”. The case had been filed by refrigeration
manufacturers petitioning against an energy efficiency ruling of the Department of Energy
denominated in carbon emissions (US Court of Appeals 2016: 40).v The court ruled instead
that calculating the social price of carbon “was neither arbitrary nor capricious” (US Court of
Appeals 2016: 5). Carbon offsets have also acted as tradable securities, with recognised, but
several, accounting and valuation methods, while the G20, whose members contribute 85%
of global emissions, are working on regulation to provide “consistent, comparable, reliable
and clear disclosure around the carbon intensity of different assets” (Carney 2015: 12).
However, denominations in carbon have met many obstacles in situ as molecular calculations
struggle to quantify complex ecosystem change, and the extensive work required by natural
scientists, mathematicians, accountants, auditors and so forth to attest to the carbon properties
of complex human and ecology interactions has proved costly, as well as intellectually
challenging.
 From Phase II onward, new technologies emerged in the dispositif governing climate
change which initially promised to be less costly than carbon accounting, and among these
were “green-ness”, abstractions of “ecosystem services”, or measured units of “natural
capital”. Green bond issuers have made substantial innovations in codes to prove their green-
ness, although they also benefit from it being hard to prove claims untrue, and there being no
legal channel to establish the worth of either claim (Bracking 2015). Just like carbon
accounting, greenness emerges from a beyond-human world of complex, animate and
distributed agency.
Arguably, a simpler abstraction or convention is needed to mobilise finance, and with
unfolding climate change already affecting business, the private sector – in the particular
person of insurers – has not waited for public endorsement of green measurement. Indeed,
events appear to be bypassing such an outcome, with moves to provide insurance-based
products over-taking long public debates over climate economization processes which sought
to fix the carbon, ecosystem, or green-ness unit into the valuation of climate finance. Instead,
the newer complex modelling systems combine in the insurance industry with algorithmic
programmes and emerge in new calculations of risk and its (costed and actionable in the
present) eco-calculative siblings, resilience, adaptation and mitigation. These can financialise
nature at a further abstract scale to provide a commensurate super-structure to ecocybernetics
and the new biopolitics of human management (Braun 2015).
Work on catastrophe bonds and weather insurance has already noted that insurance
regimes are happy to proxy for a clear measurement of weather-induced loss and damage
reported by actual insured persons by using matrix triggers and weather models, knowledge
products owned by corporates close to or connected to the weather securities issuer (Bracking
2016: 99-107; Johnson 2014). In effect, information about the weather serves as a proxy for
the effects and patterns of the weather itself, and information about weather or nature more
generally is commodified (Loftus and March 2015: 174; Pollard et al. 2008). With this
breakthrough in defining the risk regime, climate change can be managed by owners of
finance, albeit that in terms of Africa these “service providers” such as the nodal Africa Risk
Capacity of the IFC and African Development Bank, established in 2014 at the New York
Climate Summit, still seek multilateral underwriting, subsidy and project risk management.
In this move toward insurance-based finance the Paris Agreement text on loss and
damage, Article 8, Section 4, flagged future areas of cooperation on loss and damage as
“Comprehensive risk assessment and management; (f) Risk insurance facilities, climate risk
pooling and other insurance solutions… [alongside] (h) Resilience of communities”
(UNFCCC 2015: 8). This signposting occurred in the context of a Treaty text which
effectively removed the right to sovereign risk liability based in historic emissions (see
Weisser and Müller‐Mahn 2017: 811). Thus in an already hyper-indebted Africa,
governments and municipalities will be encouraged to buy insurance-denominated debt
instruments, or issue their own securities to investors, covering weather, natural disasters,
catastrophes and other multiple risks, and pay a monthly interest premium to the bond holder,
with the promise of a pay-out if an event registers as worthy in the trigger matrix owned by
the insurer. This represents a highly abstracted panopticon system for the financialisation of
climate, which bypasses carbon, green, natural capital or NAMA/ITMO accounting, in favour
of a proven system of calculation in which capital owners have at least 400 years of
accumulated experience: commercialised risk. The major insurers and banks are rushing to
develop multiple risk indexes, such as Lloyd’s “Cities at Risk”, in the context of a tripling of
the number of registered weather-related loss events since the 1980s (Carney 2015: 3).
For example, the “innovative” Kenya National Agricultural Insurance Programme,
which follows similar schemes in Mexico, India and China, was launched in March 2016 to
insure pastoralists and farmers against droughts and floods, and is underwritten by the World
Bank and a flotilla of other bilateral development finance institutions, including the Global
Index Insurance Facility (GIIF), a multi-donor trust fund managed by the World Bank Group
with funding from the European Union, Japan and The Netherlands. The purpose is to assist
farmers’ financial resilience to shocks (World Bank 2016). As with all abstract modelling
systems, advocates stress the complex science of the “state-of-the-art method of collecting
crop yield data, using statistical sampling methods, GPS-tracking devices, and mobile
phones” (World Bank 2016). This programme may be the first in Africa, but it is a bridge to a
global climate and catastrophe market worth $123 billion in economic losses by all events
and regions in 2015, a figure 30% below the 2000-2014 mean of $175 billion, of which $35
billion were insured losses (Aon Benfield 2016: 2-3). Risk and insurance represent a growing
means of governance of the poor in relation to climate change that has benefits over the
traditional, and declining, mode of development finance. It is cheaper, remote, performative
and flexible.

Risk, Time, and Calculation

Risk is playing an increasing role in the climate finance dispositif, evidenced in the
expanding scale of the climate insurance market, and the spread of its valuation technologies
across into other products. This growth is also a response to climate change itself, as
increases in extreme weather encourage people to see the future as more risk-laden, and to
experience time itself differently. “New” time is coming toward us from the deep future laden
with catastrophe “in the sense of the revelation of things that are coming toward us” (Latour
2013: 12), rather than flowing from the present to the future as it did in modernism (Braun
2015: 239). In this, “the shape of things to come is increasingly seen to be non-analogous
with what existed in the past” (Braun 2015: 239) in a “time as Kairos”, eventful, non-linear,
with tipping points and ruptures rather than time as chronos, repetitive clock time (Negri
2005: 152). Here the speculative mode of risk, with its emphasis on the actionability in the
present of an uncertain future, makes insurance a synergistic governance technique in relation
to climate change, particularly in respect of non-linear ruptures.
This salience of risk and increase in claims events, in turn, allows owners of finance
an increased role in managing climate change through greater investments in climate
denominated insurance linked securities. Financiers, by their nature, seek to capitalise on the
future, and fix that future in place (Ouma 2015), such that finance has a future orientation, a
distended temporality and an inherent stochasticity (Poovey 2015). The “coming together” of
financialised climate within conceptions of “new time” opens investment possibilities and
adds a new strengthened synergy to risk and finance as climate governance technologies.
However, disruptive time has also prompted innovations in risk management, wherein risk
calculations in climate finance are increasingly de-linked from an actual reference to specific
events, production, or exchange, and made to reside in abstract multi-variate modelling. This
once-removed approach to climate governance found in current Phase IV products generates
distance between people and their management; and allows climate governance to be
performative, giving the appearance if not reality of care. It also denies historical
responsibility for emissions and resets the clock at the present, with the poor required to pay
for their own adaptation into the uncertain future.
However, these calculations are still not easy. If social and natural science are
struggling with new epistemologies made necessary by non-analogous present and future
worlds and unpredictable time, as Latour (2013) suggests, the factoring of time into risk
frameworks by financial managers of both equity and insurance is facing a similar challenge,
not least because the time used by finance traditionally only looks forward to the near
horizon. In a seminal speech to this effect, titled “Tragedy of the Horizon”, to Lloyds of
London in December 2015, the Governor of the UK Bank of England, Mark Carney, pointed
out that most time horizons used by government central banks, the insurance industry,
companies and economists are only a few years ahead, such as two to three years for
monetary policy, or three to five years for credit ratings, while climate change demands
consideration of the time horizon beyond (Carney 2015: 3-4, citing Bank of England 2015).
Carney urges insurers to extend their measurement of time and risk further into the future to
mitigate climate change effects. This would move the insurance regime, and environmental
governance, toward the panopticon of a fully financialised but abstract matrix of nature-based
risk.

Conclusion
This paper has argued that the work of calculation to generate climate finance products turns
on making commensurabilities between different denominators that link the institutional
nodes of the climate finance dispositif, which are still “becoming necessary” (Althusser 2006;
Braun 2015; Deleuze and Guattari 1983; Foucault 2007; Marx, 1973). Concepts of carbon,
green-ness, resilience and insurance-based accounting, each loosely derived from the phases
of a deepening financialisation, come together and correlate in acts of contingent becoming.
For example, as we saw above, green bond investors and issuers of insurance securities have
reached out to the Green Climate Fund as an institutional node to help manage their emerging
hybrid products and aggregated infrastructure and energy assets, with the GCF often
facilitating access to public sector guaranteed income streams.
But perhaps ironically when the source of funds is often public, this ability to secure
derivative income streams from assets is for many the core of what it means to financialise
something (on infrastructure, see Bracking 2016; Hildyard 2016), and is increasingly
calculated for climate finance products, particularly as they emerge in Phase IV. This risk
calculation then conditions the prices paid for environmental services, insurance or bonds.
Thus, while value is discovered in multiple, contested and variously denominated indicators –
such as social and ecological impact, resilience, carbon, ecosystem services, or “green-ness”
– risk emerges as salient in bringing them together because of its close relationship to income
streams. This confers on risk an increasing organisational and denominational role in the
dispositif of climate finance.
However, using risk or insurance-based accounting does not solve the calculative
challenges within the valuation processes of climate finance. Foundationally, accounting for
time and climate change remain challenging academically, scientifically and in business and
insurance practice. Time, because traditional financial risk calculations find long
temporalities punctuated by crisis events hard to model; and climate change, because the
definitive, positivist and biometric natural science calculations for carbon are simply not
there, let alone difficult to price, when referent to complex, changing ecological systems
(Latour 2014). Much work is required to take flexible nature to financialised product: it needs
scenario planning, computer modelling, mediation by banking, finance and insurance
(Cooper 2010); it needs to be framed as something capital can “see” (Robertson 2004, 2006);
it needs to be conceptualised as services that are pacified and liquid, despite its own animism
(Sullivan 2013a, 2013b); and it requires the social articulation of a valuation process in order
to arrive pacified at the point of a financial transaction (Bracking et al. 2014).
Throughout this complexity, financiers, just like social and natural scientists, are
struggling with accounting for future time and rapid ecological change in the “becoming
necessary” of the encounter between nature and finance in the context of climate finance.
They are also experiencing experimental failures, like the collapse of the European carbon
market, or the non-implementation of RBPs in REDD+. However, this article has argued that
risk is demonstrating the strongest efficacy as an organisational rationality and valuation
denominator in the context of contemporary climate finance, while the concept of the
dispositif has helped to analyse this assemblage as one which gives a greater power to
financial calculation, and thus to financiers, in the management of nature-society relations.

Endnotes
Notes
1. Christophers recently argued for a ‘risking’ of Marxist value theory, wherein risk should be
designated as the singular source of financialised value (2016). This article disagrees with assigning
risk as the single source of value but does argue that it is a central organising concept for the pricing
of financialised products.
2. The World Bank has also been awarded a $27.3 million project in Mali, the Inter-American
Development Bank a $20 million guarantee and $2 million grant, while the European Bank for
Reconstruction and Development secured a USD344 million loan to join its USD 1 billion
investment.
3. Paris Agreement section 4 on ITMOs ‘(c) To contribute to the reduction of emission levels in the
host Party, which will benefit from mitigation activities resulting in emission reductions that can
also be used by another Party to fulfil its nationally determined contribution; and (d) To deliver an
overall mitigation in global emissions’
4. Warsaw Agreement (UNFCCC, 2013, 4) talks of NDCs as being produced ‘without legal prejudice’
as perhaps a ‘protocol’. NAMAs are referred to (2013, 4, 5, 31) in the context of quantification of
emissions, implementation and accurate measurement with respect to forest carbon
sequestration.
5. US Court of Appeals (2016, 39) The Department of Energy employed ‘an estimate of the monetized
damages associated with an incremental increase in carbon emissions in a given year,’ known as
the Social Cost of Carbon (SCC)
6. Foucault’s account of history as contingencies of the possible summarised in his ‘historical
ontology’, is similar to Althusser’s account of history as the ‘becoming-necessary of contingent
encounters’ (2006, cited in Braun, 2014b, 7), or Deleuze and Guattari’s ‘universal history of
contingency’ (1983, 224).

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i
Christophers (2016) recently argued for a “risking” of Marxist value
theory, wherein risk should be designated as the singular source of financialised value. This
article disagrees with assigning risk as the single source of value but does argue that it is a
central organising concept for the pricing of financialised products.
ii
Paris Agreement section 4 on ITMOs: “(c) To contribute to the
reduction of emission levels in the host Party, which will benefit from mitigation activities
resulting in emission reductions that can also be used by another Party to fulfil its nationally
determined contribution; and (d) To deliver an overall mitigation in global emissions”.
iii
The Warsaw Agreement (UNFCCC 2013: 4) talks of NDCs as being
produced “without legal prejudice” as perhaps a “protocol”. NAMAs are referred to
(UNFCCC 2013: 4, 5, 31) in the context of quantification of emissions, implementation and
accurate measurement with respect to forest carbon sequestration.
iv
US Court of Appeals (2016: 39). The Department of Energy employed
“an estimate of the monetized damages associated with an incremental increase in carbon
emissions in a given year”, known as the Social Cost of Carbon (SCC).
v
Foucault’s account of history as contingencies of the possible
summarised in his “historical ontology”, is similar to Althusser’s account of history as the
“becoming-necessary of contingent encounters” (2006, cited in Braun 2014b: 7), or Deleuze
and Guattari’s “universal history of contingency” (1983: 224).