At last week’s UNEP FI Global Roundtable in Geneva, I lost count of how many times panellists talked about “mobilising capital” and “mobilising finance”. We have mobilised hundreds of billions. We need to mobilise tens of trillions.
In the same breath, panellists explained that this mobilised capital can’t be deployed until, and unless, there are the right conditions for a commercial rate of return on the money. But when there is, capital is good at mobilising itself; and when there isn’t, mobilising doesn’t solve the problem. So, what does “mobilising capital” actually mean?
The metaphor is a military one: the things we usually mobilise are armies. The image is of vast bank vaults where the mobilised capital gathers, doing daily exercises with other capital, getting itself into peak performance for the battle ahead.
Perhaps the mobilised capital has been specially selected to suit the terrain. Psychologically, it is committed to the mission, prepared to die for the cause of climate action.
But no, it is not like that. It turns out that the mobilised capital is still at home, living a normal, domestic life.
Far from being prepared to die for the cause, the capital is sitting out battle after battle, choosing not to join the fray because it doesn’t like the terms of engagement and doesn’t fancy the odds. It has made it clear that it won’t go into battle unless it is confident that it will return safely to its parents, enriched by the experience.
To improve the odds and achieve that confidence, there are calls for a conscript army of capital, provided by the multilateral development banks, to be deployed alongside.
This was a recurring theme at the Geneva Roundtable, proposed both by the development banks and by private finance.
Rémy Rioux is chief executive of the French Development Agency and chair of Finance in Common, the global network of all public development banks. He put it simply: “The best way to mobilise private finance is to grow the balance sheet of the development banks.”
Development bank capital can de-risk a project for private finance by accepting below-market returns (concessional finance) – but it does so at a cost to the governments (and therefore publics) that fund the development banks.
It can also de-risk a project by making default less likely; the argument is that a state will do everything to avoid defaulting on a development-bank loan, because of the consequences for its future borrowing.
But in that case the de-risking comes at a cost to the governments (and therefore publics) receiving the finance, pressured to pay back loans that they can’t afford. Either way, using development bank capital to de-risk private finance introduces a new externality that the private finance is not paying for.
Despite my portrayal above, the argument made for private finance not just charging into battle is not selfish, but responsible. It turns out that the capital that claims to have been mobilised is actually needed at home.
We depend on the solvency and resilience of our financial system; we know what happens when that fails. And it could fail, if the mobilised capital incurs heavy losses.
This last part is true, and several panellists in Geneva made the argument convincingly. But it makes a mockery of the whole idea of mobilisation.
My point, therefore, is not to accuse financial leaders of cowardice and call for the mobilised capital to charge into the valley of death. The case against that approach is clear.
My point is rather for the financial sector to abandon this military self-image, stop talking about the size of their stockpiles of inaccessible money and work together with governments to create the conditions in which capital of all sorts – mobilised or otherwise – can be deployed.
Working together with governments means more than “engagement” or lobbying. Governments often don’t have the discretion to do what the financial sector would like in order to make climate projects bankable.
They, too, are constrained by their stakeholders. The urgent challenge is to find approaches that work for both parties: for investors and bankers financially, and for governments electorally.
That collaboration is not yet adequately happening. Instead, we are talking to ourselves: the two days of UNEP-FI panel sessions featured only two representatives of national governments among 75 panellists.
It is in the financial sector’s commercial self-interest to change this. If you see the trillions of finance needed as an opportunity, and if you can’t access that opportunity without government intervention – two consensus positions in Geneva – then collaboration with governments should be at the top of the agenda.
Simon Glynn is founder of Zero Ideas, challenging leadership thinking on climate action
