Prudently Heating the Planet: Tracing the Legal Logic Bolstering Fossil-Fuel Investments

Investment law is an oft-overlooked, yet vital, component of the ideological apparatus upholding the fossil-fuel industry. Despite mounting pressure for divestment, large institutional investors continue to fund fossil-fuel firms, in part, by citing the prudent-person principle (PPP), which requires trustees to act as “prudent persons.” To grasp the rationales underpinning contemporary capitalism, it is fruitful to illuminate the PPP’s history. The genealogy of the principle’s emergence in 1830 and subsequent connections to the Chicago school between 1952 and 1994, reveals its tendency to reinforce predominant market actors and expand financial-market logic. Chicago economists and lawyers disseminated the neoliberal financial theories of modern portfolio theory and the efficient-market hypothesis while tying them to the PPP and promoting its US enactment. During the 1990s and 2000s, regulators and pension fund managers adopted these efforts and successfully lobbied to expand the EU’s financial market through a similar PPP regulation, further consolidating the PPP’s influence in the contemporary financial sphere.