View / Climate finance needs an overhaul - Semafor

For developing countries, more green tech capital doesn’t always translate to a cheaper and cleaner energy system.

There’s more money than ever available from private and public financial institutions for investments in clean tech in emerging economies: nearly $400 billion in 2025, according to the Climate Policy Initiative, double the sum five years ago. It’s not enough — countries agreed at the COP summit in Azerbaijan to hit $1.3 trillion annually by 2035 — but I remember coming to Climate Week a few years ago and hearing a lot more anxiety about this subject than I’ve heard this year. One reason is that clean tech is so much cheaper that there’s more bang for the buck. Evidence is also piling up that these investments are much less risky than many investors feared: A recent study of lending from development banks to private enterprises in emerging economies since 1994 found an average default rate of 3.5%, similar to that in advanced economies.

The bigger challenge isn’t just getting more capital, but making sure it actually leads to lower poverty and lower emissions. “There’s a lot of good intent,” Tariye Gbadegesin, CEO of Climate Investment Funds, a World Bank-backed pool of concessional capital for clean energy, told me. “But we need to be better at converting that into outcomes.”

One lesson Gbadegesin has learned in her years in this field is that climate finance investments work best when they are coordinated with a country’s finance ministry, rather than energy or environmental officials, which has often been the status quo. Development banks shouldn’t just dump cash into individual clean tech projects, she said, but rather be proactive about helping developing countries fix their energy market regulations so they become more attractive to private investors, and so that the energy system as a whole, from generation to grids to end users, functions better. More financial innovation is also needed to mitigate the risk of losses introduced when imported hardware is paid for in US dollars, but energy is sold in local currency. “That’s really the fundamental challenge,” she said.

Jonathan Berman, CEO of the Shell Foundation, who I interviewed at Semafor’s The Next 3 Billion event, added that more attention should focus on consumers’ budget constraints — that is, diverting more climate finance to the engineering and manufacturing improvements needed to drive the cost of clean tech down ever further. “People assume that if you use these billions of dollars and build these clean energy systems, that the demand will just come. That’s not true, and it’s less true now even than it was six months ago,” he said, as the fallout from the Iran war has weakened household budgets. Micro-lending and other financial products designed to make clean tech adoption more affordable to low-income households doesn’t work in a world where each new day feels less predictable than the last, he said, so “we probably should be driving towards no financing at all in as many of the use cases as possible.”