Stop Lending Money to the Developing World?

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From left to right: Peter Bakker, Jean-Pascal Tricoire, Ulrich Spiesshofer and Purna Saggurti

I had the privilege and opportunity to attend the International New York Times Energy for Tomorrow conference from the 8th – 9th December 2015 in Paris. This conference was filled with CEOs, politicians and think tanks that tackled climate change from political, business and economic angles. “Stop lending money to the developing world. Derisking opportunities so the private sector can invest”, said the chairman of the investment division of Bank of America Merrill Lynch. As a student studying economics and politics, my ears perked up when he made that statement. In that statement, he captured one of the most important barriers to climate financing in this age – risk. On one hand you can have government policies delineate the implementation and deployment of green energy projects but on the other, these will continue to remain fringe investments and risky assets in investment portfolios unless the main body – the private sector, catches up.

In some ways, this represents the state of climate change investments. It has yet to catch fire because investors are cautious and waiting for each other to move. This waiting translates to inaction. How do we derisk these investments? This is perhaps where the government should step in to formulate policies encouraging businesses to take the leap forward. One-way could be to create green bonds, a different grade of investment from debt capital that is safer yet stable. Another clear signal could be government’s strong action to stop fossil fuel subsidies, setting the right prerogative for businesses to follow. Business leaders have to work with government policy makers in setting the right direction for the future. It is only with price and regulation can there be a success in fighting climate change.