Jennifer Faust, Managing Director, hosted the latest event in the BwB Talk Series, where we bring innovative leaders in impact, finance, and the environment to speak with our network around the world. The BwB Talk Series helps generate new ideas for our network by bringing experts to share their deep knowledge of sustainability topics.
We recently enjoyed a presentation and discussion from Josué Tanaka, Visiting Professor at The LSE’s Grantham Research Institute, and Principal Finance Advisor for C40 Cities. Josué holds a PhD from Massachusetts Institute of Technology and has enjoyed a distinguished career in the green finance space, where he was a founding leader of the European Bank for Reconstruction and Development’s (EBRD) climate finance initiative, launched in 2006.
The C40 Cities Climate Leadership Group is a group of 97 cities around the world that represents one twelfth of the world's population and one quarter of the global economy. The group is on the leading edge of climate action, and is deploying a science-based, collaborative approach to help the world limit global heating to 1.5°C and build healthy, equitable and resilient communities. Importantly, cities earn C40 membership through performance-based requirements, not fees. Central to C40’s work is the ‘Global Green New Deal’ - a blueprint for ‘delivering climate justice and strong, fairer economies that serve everyone.’
Some of the key takeaways from the talk were:
1. The importance of institutional and policy work: many of the roles multilateral development banks (MDBs) play are not strictly financial. These include working with governments on economic development planning, long-term decarbonisation strategies, nationally determined contributions, capacity building, and structural and fiscal policy. Whilst these do not generally involve direct transfers of capital, they have hugely significant long-term impacts. Dr Tanaka emphasised the importance of sectoral policy work, which is where he believes MDBs can have the greatest impact. He calls sectoral work ‘the crucial connector between top-down government strategy and private-sector investments.’ Governments with clear sectoral frameworks in place make it far easier to attract private capital investments, those that do not, cannot. MDBs are pivotal in helping governments create the institutions, conditions and environments that make private capital to want to invest – they are ‘a bridge between the world of finance and public policy.’
2. The limitations of blended finance: in a more rational world, the costs of externalities – such as carbon emissions and impacts on nature – would be embedded into prices, and policies reflected in clear regulations supporting the shift to a low carbon climate resilient world. Dr Tanaka invites us to consider that the current emphasis on blended approaches is simply the result of a failure of government policy frameworks to properly address these issues. Nonetheless, in an imperfect world, blended finance does have an important role to playing in maximising positive impacts. To do this effectively and efficiently, it should address some key challenges: firstly, blended instruments are often complex structures that can take a long time to become operational. Secondly, even when successfully initiated, their complexity often means that it is difficult to scale them up. When we consider the severity of the challenges posed by climate change and environmental degradation, and the scale of capital required, it becomes clear that the scale blended finance is currently operating on is not enough. Blended instruments are typically on the project level, which is highly dependent on country and project context. Blended finance initiatives have already achieved a lot in a short space of time, but if their positive impacts are to be expanded, financial institutions must find ways to scale blended instruments to the market level. The nascent and dynamic world of ethical finance can and should innovate to overcome these challenges.
3. The difficulty of Nature-based solutions: climate and carbon are in many ways far simpler to create a set of economic incentives for than nature and biodiversity; CO2 emissions are easily measurable, and it is simple enough to establish a carbon-pricing system. Moreover, in the energy sector, for example, the structures, players, and rules are clearly defined, making it far easier to intervene. Nature-related risks are far more diverse and multi-faceted, and many fundamental questions are yet to be answered, on issues such as measuring and reporting, nature-risk adaption and mitigation, and effective incentives for encouraging diverse actor groups to behave responsibly. Governments, MDBs and the private sector, must collaborate to ensure an economic and policy environment where new, regenerative business models can survive and thrive. There are no simple answers or quick fixes to these difficult problems, but this does not mean that real, effective solutions are not worth striving for; Dr Tanaka frames this issue as one of the most important and fundamental questions underpinning the work of MDBs.
Bankers without Boundaries, an innovator in finance, is a not for profit powered by former investment bankers to assist high impact projects that benefit the environment and social good. BwB works with local and national governments, cities, institutions, and foundations to mobilise capital advisory and research services. BwB applies financial concepts and structuring to public projects to align them with the investment needs of capital markets, thinking about risk reduction, scaling and generation of financial returns alongside broader positive co-benefits and impacts.
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