Can the Financial System Fix Itself?

Cary Krosinsky teaches sustainable finance at Yale, Brown, and NYU Stern, and has written eight books on the subject. He co-founded the Carbon Tracker Initiative, a think tank best known for the idea of 'unburnable carbon': that if the world meets its climate goals, a large share of known fossil fuel reserves can never be burned, so the companies that own them may be worth less than markets assume.

That idea, often called stranded assets, turned climate change from a purely moral issue into a financial one. It is a good way into his whole approach.

Cary opens with his framework of the seven tribes of sustainable finance. The idea is that people who say they work in 'sustainable finance' are not one group. They want different things and use different methods, from avoiding certain investments altogether, to integrating risk into ordinary analysis, to deliberately funding solutions.

Recognising the tribes clears up a lot of arguments. When two people disagree about whether sustainable finance 'works', they are often talking about different tribes, judged by different goals.

Divestment means selling shares in companies you object to. For years it was the most visible form of climate activism in finance. Cary argues it has largely failed to change outcomes. When one investor sells, another buys, and the company's operations carry on. The seller also gives up its vote and its seat at the table.

What has worked, in his view, are strategies that pair real financial returns with real-world impact. Money that does well while doing good can keep growing and attract more money. Money that sacrifices returns for principle tends to stay small.

Cary points to large asset owners as the models to study. The New York State Common Retirement Fund, one of the biggest public pension funds in the United States, has paired a large commitment to climate-solutions investments with a process for reviewing, and where necessary leaving, its highest-risk fossil fuel holdings. Temasek, Singapore's state investment company, builds climate risk directly into how it values investments, including through an internal carbon price.

What these examples share is scale and patience. They are long-term owners of very large pools of capital, so how they choose to invest shapes markets in a way no individual investor can.