The climate movement is beginning to stop the fossil fuel money pipeline – but that’s only half the problem. The reality is that if we want to solve the climate crisis, we must also invest trillions in new clean energy every year to build the future we deserve. Without those trillions, we simply can’t deploy a replacement clean energy infrastructure that will heal the planet, and its people.
However, while the energy, momentum and impact of the divestment movement has grown, our impact and thinking about how we unleash clean energy investment in its place has stagnated. In that vacuum, a singular focus on using public dollars to subsidise private finance has grown, with results that leave much to be desired. To get back on course, we must expand our toolkit beyond this one carrot to include a range of new sticks including green credit guidance and golden shares – public ownership stakes – in key companies.
Clean trillions: mind the gap
Analysts tell us we need to invest $4.6trn every year by 2030 to meet our net-zero goals. The problem: clean investment is growing, but it is still only about $1trn today – leaving us $3.6trn short.
Just as importantly, analysts say that for every dollar going into maintaining the gradual wind down of an outdated and polluting fossil fuel-powered system, we need $4 invested in building the clean energy system of the future. However, instead of a 4:1 ratio, we are investing $1 in clean energy for every $1 in fossil fuels – at best, we are treading water.
Getting the most bang for our public buck?
The reality is we have plenty of money sloshing around in the financial system to meet our climate goals. In fact, global annual capital formation (investment, in other words) is as much as $20trn – several times the amount we need to save the planet.
That we have more than enough money sitting in private financial markets to solve this problem has led to a resounding consensus in mainstream climate finance circles that all we need to do to is get the greed machine rowing with us, not against us. That means getting policy frameworks right so clean technology is economic and bankable.
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Where that falls short, our policy approach has been to subsidise (de-risk) private investors with public dollars to unlock the clean trillions waiting to be mobilised. That thinking has been aided by the siren song of leverage: we can use very small amounts of public money to unlock much larger private capital markets.
The problem? The results are in and they are not promising, especially for emerging markets. While policymakers have promised to leverage public money with up to 20 times as much private co-investment, multilateral development banks have received, according to nonprofit WRI, less than $0.30 of private investment for each of their publicly invested climate dollars.
Put simply, subsidising private finance alone is not a strategy for driving a clean energy transition, let alone saving a planet.
Clean trillions: when carrots are insufficient, try sticks
While there are many reasons de-risking isn’t working, the more important question to ask is: what else could work if we tried it? Our biggest failure to unleash clean energy investment is not our limited options, it is our limited imagination. The only options we consider are carrots. However, when it comes to the clean trillions, we need sticks too and they should at least include green credit guidance and golden shares in companies critical to the transition.
The first is straightforward. If a key part of the problem is that the financial system has enough money, but investors are not making investment decisions aligned with societal goals, we need to change the rules that govern their behaviour.
Laws like Dodd-Frank in the US give us enormous powers to do that. While we may not need those powers broadly given the lavish subsidies in the Inflation Reduction Act, there are some sectors, like offshore wind, where rising interest rates are hammering investment. By deploying green credit guidance in the form of outright lending quotas or more narrowly targeted refinancing facilities with preferential lending rates for key sectors, we can force the financial system to work for us, not against us.
If we are going to deploy public dollars, we also need to demand something in return: control. Anything we invest public dollars in, we should have a stake in. While there is nothing wrong with public finance being willing to take more risk, by any capitalist measure that also means we should enjoy some of the rewards. One of those upsides is a say in how companies are governed.
For instance, public dollars invested in ‘transition finance’ aimed at supporting and steering the companies and sectors most critical to the energy transition should come with a formal say over corporate governance. A version of this argument has been made for public bailouts of oil and gas companies, given they come back to the public trough time and again when the going gets tough. Instead of focusing our blood, sweat and tears on pure-play dinosaurs that cannot, or will not, evolve into birds, we should save them for the ‘convertible’ companies and industries that can.
Take Cornell Law School professor Saule Omarova’s call for government golden shares in banks. She has called for government stakes in systemically important banks to provide a handbrake on risky decisions that ultimately lead to systemic financial risk and bank bailouts – a reasonable pound of flesh to demand given the public is going to be on the hook for the fallout of these decisions and should be empowered on the front end to try to stop them.
When it comes to climate and clean energy, these golden shares could be even more powerful. They could help avoid the next subprime crisis driven by fossil fuel lending. They could be used to force banks to invest in deal teams, data procurement and clean energy lending quotas that would guarantee the clean trillions we need. Because without a say in corporate direction and governance, it is pretty clear banks will continue to have a tough time breaking up with the fossil fuel industry, let alone scaling clean energy investment.
Investing like the future of the planet is at stake – because it is
Regardless of the form a new approach to unlocking the clean trillions takes, it is clear the road runs through a reinvigorated role for governments and public dollars. That is not to say private markets are not critical – they are – but they should not be in the driver’s seat. We should be.
Until now, we have bet the fate of the planet on an untested approach for which we have no historical examples of success. Whether it was credit guidance to aid the war effort to defeat the Nazis in the Second World War, or industrial policies that guided the economic development of Europe and key Asian countries in its aftermath, governments in the modern era have never relied on subsidising and incentivising private finance to achieve societal goals – they have simply forced its hand. When it comes to the most important challenge we have ever faced, it is time governments played theirs.