Management insights for tackling grand challenges: the case of climate-related financial risks in the financial investment industry

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Climate change has been referred to by leading economists as the greatest market failure in human history, with disastrous impacts on human well-being and economic wealth. After years of neglect, the finance sector, at the heart of the economy, has woken up to this challenge, realizing that not integrating considerations of climate change into financial decision-making produces significant risks for financial investments and the stability of financial markets. Now there is a growing consensus, especially amongst financial leaders, that climate change is a material risk and that it needs to be effectively identified, measured, monitored and integrated into financial decision-making. A large ecosystem of organizations is implicated in effecting the necessary changes: (1) investors need to change the way they assess, monitor and respond to risks, (2) companies need to report new climate-related financial information, (3) data providers and consultancies need to develop new tools for forward-looking climate scenario analysis, (4) regulators need to change their regulatory and supervisory practices, and (5) NGOs are changing their advocacy practices to support these developments. Given the high interconnectedness of the financial system, the major challenge of these organizations is to change what they do in a way that cannot be coordinated on this scale and that is complicated by the inherent complexity and uncertainty of climate change. Against this background, this project investigates how organizations can tackle large-scale problems when they are caught in a complex web of interactions with other organizations. It examines in detail the practical challenges that emerge in the interactions with other organizations and how the local experiments in multiple organizations interact and contribute to emerging collective approaches to the large-scale problem (i.e., to climate risk). The project draws on a longitudinal, qualitative research approach in which a team of four researchers uses ethnographic methods to document in real-time the actions of multiple organizations to address climate risks. Over the course of four years, the team will collect detailed data on and analyse the actions of (1) financial investors (e.g., pension funds, insurance companies, asset managers etc.), (2) financial data providers and consultancies, (3) investor networks, and (4) NGOs. Data collection will unfold in three waves of one year each. The first wave will focus on an initial set of four leading organizations in the area of climate risks. In the two subsequent waves, the data collection will gradually be extended to cover a total of approx. 12 organizations. The focus will be on organizations headquartered or located in the UK with some limited data collection in other European countries. Ethnographic methods for data collection accomplish deep immersion in the work of others through participant observation (e.g., observing meetings, social interactions and work at the desk), open-ended interviews and the collection of documents.Theoretically, this research contributes to developing new theory in the area of management studies on how organizations can tackle large-scale, complex, social problems, known as 'grand challenges.' Methodologically, it develops new social science research methods that are better suited to capture the increasingly mobile and complex issues facing organizations today. Practically, it seeks to inform the actions of (1) policy-makers and regulators to make financial markets resilient and sustainable; (2) financial investors to minimize risks and safeguard returns; (3) consultancies and data providers to develop appropriate tools and data; and (4) NGOs to develop effective advocacy.