Making the Jump: How crises affect policy consensus and can trigger paradigm shift

Making the Jump: How crises affect policy consensus and can trigger paradigm shift outlines the dynamics behind the financial regulatory paradigm shift that began in 2008-2009. It seeks to identify parallels with and differences from the slower moving, even more consequential, global climate change crisis, and the fitful, still under way, policy paradigm shift that the United Nations Environment Programme (UNEP) and other stakeholders are trying to support and facilitate linking economic sustainability, financial regulation, markets, and climate change. The following ten observations are developed in this paper:

• Crises matter for financial system design and reform
• Crises can enable leaps from one policy narrative to another
• The abandonment of prior policy norms is possible
• Not all policies are equally strong within a paradigm shift
• Dominant expert communities matter to paradigm shifts and policy outcomes
• The creation of policy consensus between communities also matters
• Paradigm shift is not a smooth process, but a lumpy one
• Using soft-law mechanisms is a viable second option
• There are multiple pressure points for change
• Emerging countries are important to the paradigm shift.

Some of the lessons from the financial crisis response and policy shift are potentially useful and positive. Others are more mixed. Some are negative. Nonetheless, these observations from the financial crisis have utility as policymakers and actors consider how to impact the speed at which broad new policy approaches can be adopted, and can begin to integrate climate change risks within financial decision-making and policies.

This paper was presented at the UNEP Inquiry/Centre for International Governance Innovation Academic Symposium on the Design of a Sustainable Financial System, held in Waterloo (Canada) in December 2014.