Harder, Faster, Stronger – How Financial Markets are Shaping the Biosphere

Should ecologists and sustainability scientists care about financial markets? The answer is a loud and resounding “yes”, and I’m delighted to finally be able to share our latest article published in Trends in Ecology and Evolution yesterday, co-authored with colleagues Johan Gars, Fredrik Moberg, Björn Nykvist and Cecilia Repinski.

The article not only shows how financial systems connect to social ecological change at the global scale. It also shows the ultra-speed by which financial information flows through international commodity markets, often supported by sophisticated trading algorithms (Figure 1 below). Bluntly put: financial systems have a harder, faster, and stronger – and not necessarily better (for those familiar with the Daft Punk song) – impact on social-ecological connections in the Anthropocene than previously understood.

Figure 1. Algorithmic trade with commodity derivatives

Figure 1. Map showing the world’s 20 largest commodity derivatives markets, denoted with their official acronyms (KCBT = The Kansas City Board of Trade; ROFEX = The Rosario Futures Exchange; etc). Symbols indicate the main commodity derivative traded, and the purple-colored circles show where indications of algorithmic trade have been found (blue circles = no indication of algorithmic trade). The graph in the lower right corner shows the rapid increase from year 2005 in the turnover of commodity futures contracts traded in organized exchanges. For details, see Galaz et al. 2015 in TREE

Debates about the “financialisation of nature” and the potential of divestment from fossil fuels  is not new of course. Our article broadens these debates in two ways as I see it.

One is that it challenges recent arguments about the lack of “intercontinental connectivity” between ecosystems across the world put forward by Brook and colleagues in TREE in 2013 (see my previous critique here). As others have explored already, globalization has created a number of “telecouplings” across the planet (e.g. Liu and colleagues), often through trade flows. We show for the first time, that intercontinental connectivity between ecosystems also increasing unfolds through financial flows, financial innovation and associated technologies (illustrated in Figure 2 from McKinsey Global Institute (2014) .

Figure 2. Global Financial Flows, 2002 vs. 2012. Picture from McKinsey Global Institute (2014). Global flows in a digital age: How trade, finance, people, and data connect the world economy (pp. 12).

The second contribution I believe, is that we take a closer look at what normally (and sometimes too vaguely) is referred to as “Wall Street” (like here) or the “financialisation of nature” (e.g. here). These are valid and important contributions, but only give us a first glimpse of the complexities and dynamics of global financial systems and capital flows.

Put bluntly: “Wall Street” is not an amorphous “black box” system  – it consists of financial actors such as investment banks and hedge funds; instruments such as commodity derivatives; and technologies such as algorithmic trading. Understanding how financial connectivity evolves in the Anthropocene should include more than general criticisms against financial systems. It should also try to map how these actors, their relations, and associated capital flows shape the biosphere.

What happens in Wall Street and other international financial centers matters. Hopefully our article provides a first step in opening the financial “black box”.

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