I’m excited to share that my most recent article, Derivatives and ESG, is forthcoming in the American Business Law Journal (Vol. 59, no.4)!  I recently posted a draft of this article to SSRN.  As the abstract below suggests, it examines the role of the derivatives ecosystem – the instruments themselves, trading exchanges, and clearinghouses – in promoting ESG objectives. 

I’ve written a lot about credit default swaps (for example, here and here).  So, in researching this topic, I was especially struck by the potential for well-known past and existing challenges in credit default swap markets – specifically, decentralized decision-making and conflicts of interest – to eventually become issues in the currently nascent sustainability-linked derivatives (SLDs) market, a type of over-the-counter ESG derivative.  Undoubtedly, the SLDs market is set to grow, so I’ll likely be posting on this topic again in the future!   

Here’s the abstract:

“Financial markets are increasingly developing innovative, ESG-related derivatives and relying upon these instruments to hedge ESG-related risks. The global derivatives markets are among the largest, most consequential financial markets in the world. Derivatives are financial contracts that derive their value from an underlying reference entity which can be almost anything, including interest rates, credit, equities, foreign exchange, the weather, or the price of carbon. They provide for hedging, investment (speculation), and arbitrage, and trade on regulated exchanges and in the over-the-counter markets. Derivatives can also facilitate access to the tremendous amounts of capital necessary for the transition to a cleaner energy future and to the objective of net zero emissions by 2050 of governments around the world.

Through an exploration of recent innovations and developments in the exchange-traded and over-the-counter derivatives markets, this Article explores the role of the derivatives ecosystem – the instruments themselves, trading exchanges, and clearinghouses – in promoting ESG objectives. It also highlights the potential for the nascent sustainability-linked derivatives market to face certain challenges experienced by and present in the market for credit default swaps.”