Constructions

A core debate concerning green finance revolves around the question of what constitutes finance that is ‘truly green’ and what poses as ‘green’ but is decidedly not so – in other words, greenwashing. Such concerns are not only part of scholarly debates (e.g. Bracking et al., Reference Bracking, Borie, Sim and Temple2023; Fichtner, Jaspert, and Petry, Reference Fichtner, Jaspert and Petry2024; Parfitt, Reference Parfitt2024) but also inform regulatory efforts in this domain (e.g. the EU Sustainable Finance Action Plan, the UK’s Green Claims Code, or the Taskforce on Climate-Related Financial Disclosures’ reporting guidelines). However, the existence of a ‘false green finance’ simultaneously implies that ‘true green finance’ exists. Yet, an analytical approach focusing on the intersecting points between the macro and the micro arguably involves investigating the enactment of ‘green’ finance beyond true-or-false characterizations (see also Golka, Reference Golka2024). Instead, it asks how it manifests in observable social and material interactions, identifying those sites where constructions of ‘false’ and ‘true’ green finance occur and take on meaning.

Constructions are a core issue in more micro-foundational approaches to socioeconomic research. Concerned with the coming together of different types of actors, settings, and interests, such approaches tend to focus on what is actively construed in empirical interaction. A focus on interaction can be helpful to steer attention toward how exactly empirical phenomena are enabled, maintained, and ultimately co-created on the micro level. Although ideas, norms, values, concerns, discourses, etc. are of high importance in such analyses, they need to be performed and shaped, even created in interaction, which is also where they clash, coincide, complement, or suppress others. This points to the particularly productive character of constructions investigated in such ways.

How constructions come about on the microlevel and feed into the macro level is well illustrated by the interlinkages between micro and macro levels in the construction of green finance when honing in on the production of the EU Taxonomy for Sustainable Activities. Formally an effort to produce a knowledge-based classification of what constitutes a sustainable economic activity, the Taxonomy’s history reveals how meanings are constructed in reality through contestation and the exercise of power. Political and economic interests successfully prevented the development of a ‘red’ taxonomy of harmful economic activities and, notoriously, managed to include natural gas and nuclear energy in the taxonomy – leading to the exit of environmental groups from the EU’s Sustainable Finance Platform (Fontan, Reference Fontan2025). The result is an influential green finance governance framework that is constructed in numerous interactions on the micro-level, pervaded by power plays and forged due to specific institutional rules.

Like the EU taxonomy example, the inscription of existing and emerging ideas around the environmental character of assets, be it ‘green’, ‘brown’, or ‘dirty’, or otherwise illustrate similar constructions. These categories are not only abstract concepts of risk and financial stability in relation to climate and sustainability, but they forge socio-environmental realities and futures. For example, the articulation of ‘climate targets’ and ‘transition plans’ are not just ‘symbolic’ activities to appease expectations and regulations (Clift and Kuzemko, Reference Clift and Kuzemko2024). Instead, they produce concrete realities through practical assessment processes and devices that inform investment decisions and justify largely unchanged capital flows that may reinforce existing industrial positions. This hardwires such positions on a micro-foundational level into technoscientific climate regimes with the help of ‘green’ finance (Field, Reference Field2022). Similar things could be said about the qualification of assets as carriers of impact attributes or assets as ‘stranded’ or as ‘kept afloat.’

Therefore, ideas such as ‘green’ or ‘brown’ assets are not only conceptual constructions, they also need to be performed and manifested in interaction in micro-foundations, which create and co-produce macro-structural phenomena. The way in which actors come to understand climate and transition risks associated with asset valuation as well as what kind of assets are ‘green’ or ‘sustainable’ and how they act on that understanding thus has important implications for macro-level outcomes, such as global patterns of capital flows and potentially (financial) institutional change.

Cleavages

Cleavages are widely understood as deep and potentially enduring divisions in society (Lipset and Rokkan, Reference Lipset and Rokkan1967). The ‘constructivist challenge’ to more structural and agentic approaches to political economy has been to destabilize the fixed assumptions about the nature of interests and institutions, which poses a challenge to traditional political economy. Interests are commonly assumed to be based on actors´ positions within the economy. Even when divided into two simplified broad groups – the short-term profit-oriented capital of the market-based world and the patient capital of the bank-based world – finance appears as a resource-heavy sector with a structurally privileged position in the political economy shaping various macro-outcomes (Dafe et al., Reference Dafe, Hager, Naqvi and Wansleben2022). Yet, who constitutes a financial actor, and which interests they hold is not always predictable and may potentially represent new divisions in society.

Case in point is the critical response from some of the world’s largest investors and investor groups to the EU Commission’s intended omnibus legislation to amend its sustainable finance regulations. Although investors have often lamented the costs associated with the regulatory burden posed by EU rules, the signatories are calling for ‘long-term policy stability’ and warn against a ‘significant’ weakening of the rules (Eurosif, PRI, and IIGC, 2025). By the same token, green finance has also opened a window for non-financial actors to transform into financial sector players: both the United Nations Environmental Programme and the World Wildlife Fund are examples of prominent organizations that have successfully reoriented themselves toward the financial sector (Anyango-Van Zwieten, Lamers, and Van der Duim, Reference Anyango-van Zwieten, Lamers and Van der Duim2019; Park, Reference Park, Guzzinu and Neumann2012) – in some cases co-shaping the ‘unlikely coalitions’ that help institutionalize green finance as a governance regime (Tischer and Ferrando, Reference Tischer and Ferrando2024).

But also from a micro-foundational perspective, interests are complex and hard to capture due to their interdependent nature. They, too, need to be manifested and interactionally asserted to become meaningful and effective. It is, therefore, crucial to seek out micro-foundational alliances, struggles, inclusions and exclusions of concerns of actors, and the ways and means by which they are enabled or disabled. This includes social as well as technical entities that take part in interactions, enshrined in and at the same time performing and shaping macro-structural phenomena. Returning to our previous example of the EU Taxonomy, for instance, Seabrooke and Stenström (Reference Seabrooke and Stenström2023) have interrogated how implicit yet shared understandings on who counts as a credible expert, and who does not, shaped the inner workings of the EU’s High-Level Expert Group. They show how those well-versed in the financial language of risk and return enjoyed a more privileged position within the expert group – and thus engaging constructions of green finance in particular ways – than members employing more environmental discourses. Importantly, these were not always financial sector representatives: here too, the fluidity of financial expertise meant that those crossing sectoral boundaries between finance, civil society, and the public sector were better positioned to successfully navigate the contested deliberations around the Taxonomy.

As the examples above illustrate, green finance gives pause to reconsider who the main actor groups within the financial system are, what constitutes their interests, and how green finance is shaped by the emergence of new cleavages. In the study of global finance, an oft-mentioned cleavage is one between debtors and creditors, where uneven power relations shape macro-structures and micro-processes alike (Vargha and Pellandini-Simányi, Reference Vargha and Pellandini-Simányi2021). This cleavage, in the context of the framing and defining of green finance characteristics exemplified in the above examples, translates into asset ownership of climate-vulnerable assets and climate-forcing assets (Colgan, Green, and Hale, Reference Colgan, Green and Hale2021). As the climate crisis accelerates, scholars assume that new conflicts will emerge between ownership of assets endowed in fossil fuel industries, for instance, versus those exemplified by coastal property (Colgan et al., Reference Colgan, Green and Hale2021; Taylor, Reference Taylor2020). In pursuing their interests, owners of climate-vulnerable assets are assumed to support climate policy, while owners of climate-forcing assets are assumed to obstruct climate politics. This links to the different constructions of what is understood as ‘climate vulnerable’ versus ‘climate forcing’. Depending on these constructions, potentially new interest alignments are formed, which may lead to yet new cleavages (Ausserladscheider, Reference Ausserladscheider2024).

A productive case for illustrating the interdependence of macro- and micro-dynamics is the Network for Greening the Financial System (NGFS) and the processes of what Helleiner, DiLeo, and van ’t Klooster (Reference Helleiner, DiLeo and van ’t Klooster2024) have called ‘competitive regime creation’. Having become a critical transnational actor in shaping green finance, the NGFS´s emergence can be traced back to new coalitional dynamics that responded to geopolitical reordering and the retreat of the United States from international organizations. On a micro level, the emergence of the NGFS led to a ‘conversion’ of central bankers in order to ‘forge’ a new climate consensus, such as in the case of the European Central Bank (Deyris, Reference Deyris2023). As the ‘competitive regime’ is created, the US – once at the forefront of financial globalization – enacts its domestic crusade against ‘woke capitalism’, which in turn affects the global regulatory politics around green finance. In contrast, the EU and China have already put their weight into green finance standard setting that differs from the old politics of US-led financialization (Larsen, Reference Larsen2023). This research shows how the shape and role of the NGFS, as well as rulemaking for green finance more generally, reflects the agency, meaning-making, and identity-building of specific financial technocrats at the finance-environment nexus. In this sense, the micro-level interactions of financial technocrats translate geopolitical cleavages into new structures of transnational financial governance.

In short, financial interests are fluid and complex, and therefore cannot be predicted based on actors´ positions or institutional contexts. With the rise of green finance, this brings about new cleavages that play out on both levels. Complex micro-level negotiations, such as those around expertise and asset ownership, underscore how shifting coalitions and geopolitical dynamics are reshaping the global financial landscape.

Complementarities

The last concept through which we propose to bridge the micro and the macro is inspired by institutionalist political economy, most importantly the Varieties of Capitalism (VoC) framework (Hall and Soskice, Reference Hall and Soskice2001). Accounts on financialization and growth models, for instance, have provided insightful critiques of the VoC´s static focus on institutional complementarities, arguing that it underemphasized dynamic changes in economic models driven by shifting demand patterns, global financial flows, and the increasing dominance of financial markets in shaping economic behavior and policy trajectories (Ban and Helgadóttir, Reference Ban, Helgadóttir, Blyth, Pontusson and Baccaro2022). This, we believe, carries important implications for the study of green finance. Most importantly, green finance might produce new variations and differentiating lines across jurisdictions. Recent studies suggest that capital market development and financial modes of governance might be changing with the rise of green finance (Gabor and Braun, Reference Gabor and Braun2025). This begs the question of whether and to what extent new capitalist variation along ‘green-brown’ lines exists – a fruitful ground for prospective research (Finnegan, Reference Finnegan2020).

Complementarities, or the idea that institutional domains within a political economy work together to co-create a particular outcome, can serve here as a joint node of analysis. After all, green finance is ultimately – and ideally – about providing the capital for (however construction-defined) green activities by non-financial firms, households and municipalities, or cooperatives. In other words, a return to a very old-fashioned situation whereby finance serves other domains in the economy and not just itself: production systems, corporate governance, labor markets, training systems, or modes of consumption and investment. The intersection between these domains, where the complementarities either fail or succeed, provides a useful starting point to connect the macro to the micro. Recent studies have shown, for instance, that traditions of non-market coordination in coordinated market economies (CMEs) have been extended beyond the realms of the labor market and corporate governance toward ‘sustainable’ and ‘green’ finance (Ćetković and Buzogány, Reference Ćetković and Buzogány2017; Nahm Reference Nahm2024; Smoleńska, Reference Smoleńska2025). Private governance initiatives such as the Netherlands’ Climate Commitment for the financial sector beg the question of whether some political economies produce more sustainability-oriented finance than others (Wiß, Anderson, and Van der Zwan, Reference Wiß, Anderson and van der Zwan2024).

Beyond institutional complementarity, the nature of such intersections empirically manifest in micro-foundational interactions too. Micro-level complementarities can be understood as negotiated on a practical level, where (inherent) financialized maxims of ‘self-serving finance’ navigate such ‘green’ affordances now bestowed on them e.g., via screening, capital allocation, disclosure, etc. A fairly unarticulated feature of climate-related reporting regimes, for instance, is what we might call its intended or unintended ‘political economy of attention’ or ‘hermeneutic effect’ around forming understandings of environmental dimensions of financial objects (c.f. Archer, Reference Archer2024; Folkers, Reference Folkers2024). Whether these objects are assets, portfolios, or loans, finance has to articulate, or construct, the environmental aspects of the objects they own or manage (Golka, Reference Golka2024). Financial actors do this only partly on their own terms, being embedded in a broader system of incentives, information signals, and relations of appropriateness. By looking at how things such as ‘carbon’ attributes are constructed in practice on the ground, it becomes clearer how agency and power are distributed between private and public financial institutions, as well as, for example, analytics providers and their own practices and structural situatedness (Dimmelmeier, Reference Dimmelmeier2023; Kob and Dittrich, Reference Kob and Dittrich2024). Business models and technical infrastructures enclose information, which layer different interests of competitive information markets onto those of incumbent financial interests on the macro level. Such different interests, in this case in the processes of portfolio carbon footprinting, align by means of sociotechnical interdependencies, here to express and account for ‘financial emissions’ (Kob and Dittrich, Reference Kob and Dittrich2024). This shows how these diverse actors, their expertise, roles, and interests often act complementarily in the context of green finance, adding central actors and new sites previously under the radar to the palette of the political economy of ‘green’ finance.

A micro-foundational approach in this regard can highlight how green finance is defined and negotiated in multiplicity in the field and how this spectrum unfolds and shapes transition efforts at the aggregate level in different ways. In this context, institutional interests, positions, and power are not as clear-cut as, for example, in VoC concepts. These dynamics require placing more nuanced and micro-foundational lenses on dynamics of social and material struggles and how they feed into macro-level structures. More integrated micro-foundational and macro-structural perspectives can then shine light not only on cleavages but also on complementarities for increasingly complicating constellations, such as NGOs and environmental think tanks in green finance as mentioned above. These are not just political lobbyists strictly opposing financial interests and institutions; often they are entangled within the financial industry and also the state. This could be via positions on advisory boards of industry initiatives and standard setters, co-designers of climate alignment assessment methodologies and tools, or in the form of revolving doors for staff between third and financial sectors. In this way, the dominant idea of ‘green growth’ is being shaped, strategically and out of actual conviction, in various contingent and changing ways – thus contradicting one supposedly coherent version of it. Therefore, such dynamics on the micro-foundational level are complementary to the institutional arrangements characterizing the macro level.

In short, green finance is reshaping economies by creating new institutional complementarities in the interdependencies of macro-level structures of political economy and in micro-level interactions of actors.