Financial intermediation in the 21st century: the rise of environmental investing and financial technologies

This thesis seeks to shed light on how the operation of financial markets is linked with environmental outcomes at the regional, national and international level, by exploring the geographical tensions between the spatiality of finance and the scale at which environment-related decision making occurs. A focus on the financial sector cannot overlook the importance of information systems and decision-making processes of financial intermediaries. Hence, a secondary aim of the thesis is to explore the geographical scope of information systems and decision-making process of financial intermediaries, including that of emerging fintech intermediaries. Finally, the thesis is also concerned with explaining the role of environmental policy on the decision making of financial intermediaries, companies and entrepreneurs alike. The four substantive chapters focus on different types of intermediaries and clients, whose geographical scope allows for the exploration of different configurations of the finance – technology – environment nexus. First, the thesis explores how fossil fuel divestment commitments and environmental policies have shaped the geography of capital flows into the oil and gas sector. I find that the total assets pledged for divestment in a given country is negatively associated with capital flows to domestic oil and gas companies, particularly when divestment is led by regional or sovereign governments. Amongst environmental policy instruments, emissions trading schemes and renewables feed-in tariffs have been most impactful in reducing oil and gas sector capital inflows. This study presents the global scope of financial markets and companies through investment banks and the oil and gas sector, which is contrasted with the limits of country level environmental policies and state intervention. Next, I investigate how different types of environmental policies and new regional environmental knowledge affect new venture creation in green (environmental), brown (fossil fuel) and gray (unrelated to natural resources) technologies. I find that entrepreneurs perceive more stringent environmental policies as detrimental to starting a new venture, whereas the creation of new environmental knowledge in regions is highly correlated with the creation of green ventures but not fossil fuel ventures. The analysis also shows that gray entrepreneurs benefit marginally from the creation of new environmental knowledge, suggesting that entrepreneurs across sectors benefit from the implementation of eco-efficiency principles in the evaluation of new venture creation opportunities. The thesis then shifts the focus from entrepreneurs to banks, and how they can operationalise natural capital risk assessments as part of their lending processes. In this example, the lender has a national or regional investment focus, while the environmental risk for their clients can be local, regional, national or even global in nature. I build an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture – wheat farming and shows that such an assessment is possible, with a combination of quantitative and qualitative inputs. Finally, the thesis focuses exclusively on the links between finance and technology and shows that financial technology start-up creation is positively related to regional knowledge created in the IT sector and unrelated to regional knowledge in the incumbent financial sector. On the other hand, fintech innovation by financial services incumbents occurs in regions and countries where the clients and high fee earning subsidiaries of incumbents are located, while regional IT or financial sector productivity do not seem to be important in this context. Thus, the thesis presents four different accounts of the environment-finance-technology nexus emphasising how space, place and territory shape financial flows for the low carbon transition, environmental and financial innovation, and ultimately shape the pace at which society progresses towards tackling its most pressing issues.

Keywords: green entrepreneurship
environmental finance
fossil fuel divestment
financial technologies
environmental credit risk
fintech
natural capital
Advisor: Clark, G