Solving complex climate finance problems

The climate crisis demands an urgent and sweeping transformation of our energy systems. As we rapidly scale up wind and solar to decarbonize electricity generation, the intermittency of these renewable sources poses a significant challenge. This is where pumped storage hydropower offers a proven, cost-effective solution for grid balancing and long-duration energy storage. Around the world, over 300 pumped storage plants are already in operation, with a total capacity of over 160 GW. These facilities can store vast amounts of energy by pumping water uphill into a reservoir when the power supply exceeds demand and releasing it to generate electricity on demand. The benefits are substantial: # Pumped storage allows better integration of renewables, avoiding curtailment of wind and solar when supply overwhelms the grid. Studies show it can enable twice as much renewable capacity. # It provides storage across days or even weeks to handle sustained lulls in renewable generation - unlike lithium batteries that offer only short-duration storage. # Pumped storage is the most affordable large-scale energy storage available, at around $100-200 per kWh. This is vital for viability. # It delivers ancillary grid services that stabilize frequency and voltage, maintaining reliability. The technology is time-tested, and new sites are shovel-ready - over 14,000 potential pumped storage locations have been identified just in the US. Yet only a few new capacities have been built in decades. Complex licensing and uncertainty over returns on investment are holding back projects. The Inflation Reduction Act has made pumped storage eligible for clean energy tax credits, finally providing incentives. But more policy support is imperative. Only an orchestrated effort across the climate financing landscape can provide the affordable capital needed to build out pumped storage rapidly and dependably. The technology is proven – it is up to us to prove its economic viability. We as a climate financer like -Green Climate Fund and Climate Investment Funds, could provide concessional financing to prioritize these projects. Electricity can be stored to pump water from a low-lying reservoir into a higher one. When power is needed, the water flows back down and spins a turbine—often the pump, spinning in reverse. The flow rate and the elevation difference determine the power output, and the volume of the upper reservoir determines how much energy is stored—and thus how long the water battery lasts.

Even the world’s largest, most sophisticated investors—those that understand financial climate risk deeply—are structurally constrained from financing the transformations needed to reduce that risk at its source. Simon Mundy's recent Financial Times article on Norway’s $1.8 trillion sovereign wealth fund (Norges Bank Investment Management) is a powerful illustration. NBIM’s own modeling suggests that climate change could wipe out 19% of the value of its U.S. equity holdings. Yet its mandate—to maximize returns with reasonable risk—limits its ability to “more aggressively support climate change mitigation.” This isn’t a critique of NBIM. It’s a reminder that asset owners, no matter how committed or informed, cannot - on their own - deliver the systemic transformations that meaningful climate action requires. There is a better approach: coordinated, multi-actor strategies that are both more effective and entirely doable. Systemic transformations—redesigning energy systems, electrifying transport, decarbonizing industry—require multi-actor coordination, institutional arrangements, and financing tools that go far beyond conventional portfolio strategies. Moreover, two-thirds of future emissions are projected to come from emerging and developing economies. But most institutional capital is not flowing there, constrained by high perceived risk and low credit ratings. Mitigating climate risk requires unlocking affordable finance in EMDEs. Financial institutions can and should be core partners in confronting planetary and financial climate risk. But today’s dominant approaches—corporate target-setting, exclusions, portfolio realignment, etc.—are not enough. The more effective strategy for large asset owners who understand climate risk is to work with governments, MDBs, utilities, and real-economy actors to co-design and co-finance system-wide transition pathways. Another basic reminder is that finance follows markets, not the other way around. When coordinated transition strategies reduce fossil fuel demand, improve the risk-adjusted returns of low-carbon alternatives, and de-risk investments through mechanisms like long-term offtake agreements or expanded credit enhancements, capital will follow. Pressure on financial institutions alone will yield, at best, inherently modest and limited results. Some argue that in the absence of stronger political leadership, incremental steps by financial institutions are better than nothing. But in many parts of the world, the real bottleneck isn’t political will—it’s the structural constraints of the financial system and the lack of coordinated engagement among economic actors. In developed economies, much can be done through subnational governments, public utilities, regulators, and public procurement, even without federal action. What’s missing is not intent but practical, multi-actor coordination—and that is entirely within reach. https://lnkd.in/eueSRXqt

Last month, I talked to 40+ finance professionals working across the climate capital stack. Here are the most pressing challenges, opportunities, and insights that emerged: ⚙️ Hard Problems - Even proven tech struggles to scale: EV chargers and energy storage are mature technologies, but their merchant risk makes traditional project finance models break down. - First-of-kind (FOAK) projects remain fundamentally hard: LPO funding is likely ending, and few alternatives exist. The good news? Several new funds are targeting this gap - worth watching closely. 💬 Communication Challenges - The climate finance ecosystem speaks multiple languages: VCs talk TAM and dreams, project finance talks DSCR, insurers talk actuarial risk. Getting deals done requires translating between all of them. - Risk/reward misalignment plagues deals: Startups and VCs chase upside, but deployment partners bear downside risk. This fundamental tension delays scaling. - Climate still fights for credibility: "Senior stakeholders don't even understand Scope 1, 2, and 3," one banker shared. "Anything labeled climate gets immediately written off as concessionary." 📚 Knowledge Gaps - Deal structures remain bespoke: While startups have SAFEs and mature sectors have established project finance precedents, new climate technologies lack standardized financing models. Knowledge sharing between successful deals is almost non-existent. - The "finance-ready" paradox: Capital exists, but most projects aren't structured to receive it. Companies often start thinking about project finance years too late. 🌡️ Climate Risk - Insurance is the canary: Companies are pulling out of high-risk regions and wildly hiking rates. - Markets haven't caught up: This risk repricing isn't reflected in broader valuations...yet. - This disconnect is both terrifying and the biggest opportunity in the space. 🔥 Hot Topics - Nature & Biodiversity: Hard to quantify but drawing serious LP interest - Resilience & Adaptation: Finding new momentum as climate impacts accelerate and we prepare for a "don't-say-climate" presidency - Data Centers: Energy use + AI boom = unavoidable focus - Geothermal: Rising star for baseload power, especially post-Fervo - Global Standards: EU's CSRD and Carbon Border Adjustment Mechanism will reshape supply chains regardless of US policy, with real ramifications for manufacturers in Asia and beyond. These conversations revealed just how hard—but also how essential—it is to align incentives, build trust, and bridge knowledge gaps across the climate finance ecosystem. As Eugene Kirpichov just wrote—we need systems thinking if we're going to tackle these wider problems. Anything missing here? What's on the top of your mind for 2025?

Just read this brilliant new paper by Suzi Kerr and Xian Hu in npj Climate Action that totally reframes how we think about the climate finance gap. The number is huge: USD 8.4 trillion per year needed to meet climate goals. But instead of saying "we need more money," this paper by Kerr & Hu lays out how emerging economies can actually unlock that funding—by focusing on systems, not silos. Their “mitigation avocado” analogy is genius: * Seed = clean energy projects * Flesh = all the stuff that makes it work (policies, skilled workers, tech, finance access) * Skin = long-term vision and coordination across institutions It’s a reminder that no single tool—carbon markets, grants, or private finance—can do it alone. But when combined strategically, they can actually close the gap by 2030. This paper hits home for anyone working in climate finance, policy, or project development. It’s not just about funding—it’s about how we design the whole ecosystem to make it work. If you’re in this space, give it a read. It’ll change how you think about climate transitions in EMDEs. Let’s build the avocado together!

Over recent years, I've been examining the role of money and finance in creating value-added outcomes at the local level in developing economies. That inquiry is leading to several interesting findings, some of which I've already written about. This one’s subtle. Easy to overlook. But it’s the kind that builds—quietly, steadily—into systemic risk. I call it “The Trap.” The trap: The financing architecture undermines its own objectives. Sustainable development requires patient capital, but the system delivers short-term debt. Countries borrow to build resilience—climate, health, infrastructure—then face immediate repayment pressures that crowd out the very social spending resilience was meant to protect. Add to this what I like to call the "sovereignty premium"—the higher borrowing costs countries pay simply for being developing economies—and the trap becomes even tighter. My new brief for ORF America, co-authored with Hansika Nath, a recent UCLA graduate, aims to advance discussion on how finance in development has assumed multiple, overlapping, and confusing forms, making it difficult to understand the nature of financing flowing to many countries. This short analysis comes as The World Bank and the- International Monetary Fund 2025 Annual Meetings approach, and before the G20 and COP convene. Breaking this trap requires altering the architecture: grants rather than loans, longer maturities, new creditworthiness metrics, and reformed governance. Those working on debt dynamics for low-income economies should note that the form and mechanisms of financing development or for building resilience matter as much as the quantum and timing—otherwise, we risk creating macro-fiscal pressure while thinking we're solving problems. https://lnkd.in/ePgAX-89 #SustainableFinance #ClimateFinance #DevelopmentFinance #ORFAmerica #WorldBank #IMF #G20 #COP #ADB #AfDB #ORF

Climate scenario analysis 101 🌍 A great resource from MSCI outlines the fundamentals of climate scenario analysis and how it supports decision making in finance and business. Scenario analysis provides a structured way to evaluate how climate risk and transition pathways may influence markets, portfolios, and corporate strategies. For companies, this is increasingly relevant. Climate change is driving shifts in policy, technology, and consumer demand, and businesses need tools that test strategies across multiple possible outcomes. MSCI describes four types of scenarios. Fully narrative scenarios are qualitative frameworks that help map potential risk pathways and identify emerging issues in the early stages of analysis. Quantified narrative scenarios combine narratives with numerical estimates. They allow organizations to assign data to possible futures, creating an entry point to quantify risks before moving to more complex models. Model driven scenarios are developed with integrated assessment models that merge economic, energy, land use, and climate systems. These scenarios are widely applied by regulators and investors for stress testing and forecasting. Probabilistic scenarios introduce probability distributions to reflect uncertainty across multiple futures. This approach is useful for assessing financial risk exposure and for stress testing under varying climate conditions. Each scenario type has clear strengths and limitations. Narrative approaches are flexible and cost effective, while model based and probabilistic approaches provide more detail and credibility but require technical expertise and resources. MSCI proposes a progressive method that combines different types of scenarios. Organizations can begin with narratives, advance through quantification, refine insights with models, and ultimately integrate scenario analysis into strategy and governance. For business leaders, the implications are significant. Scenario analysis helps evaluate exposure to transition and physical risks, assess regulatory impacts, and identify opportunities emerging in a low carbon economy. It also strengthens strategic foresight. By translating complex climate science into structured outputs, it enables boards and executives to take informed decisions on risk and resilience. As expectations on sustainability rise, climate scenario analysis is becoming an essential capability for companies seeking to manage uncertainty and position themselves for long term competitiveness. Source: MSCI #sustainability #business #sustainable #esg

The climate crisis demands rapid green industrialization in the Global South. Yet our international financial system remains stuck in outdated frameworks that make this virtually impossible. In my latest piece, I explore why the current financial architecture is failing us and what we can do about it. Drawing on examples from South Africa's energy transition to Indonesia's battery ambitions, I outline: Why the much-celebrated climate finance commitments are nowhere near sufficient Three fundamental reforms needed in our multilateral development banks How Global South countries can leverage their collective power to drive change Strategic options available to accelerate green industrialization The stakes couldn't be higher: either we transform our international financial institutions to enable green industrialization, or we fail on both development and climate goals. There is no middle ground.

The numbers tell a stark story: #ClimateFinance needs to grow 𝐬𝐞𝐯𝐞𝐧𝐟𝐨𝐥𝐝 by 2030 to meet the $4.35 trillion annual funding required to limit global warming and adapt to its effects. Current spending? A mere $632 billion annually. Governments and charities alone cannot fill this gap. The private sector, managing over $210 trillion in assets, 𝐦𝐮𝐬𝐭 play a bigger role. Yet barriers such as the "tragedy of the commons" and "tragedy of horizons" keep private capital from flowing into climate solutions at scale. Innovative approaches like carbon markets, public-private partnerships, and financial instruments that de-risk investments can help overcome these challenges. Encouraging private sector participation is especially crucial for adaptation projects in vulnerable regions, where funding needs far exceed current contributions. The path is clear, to make climate investments not just necessary, but profitable we need: ✅ 𝐏𝐨𝐥𝐢𝐜𝐢𝐞𝐬: Supportive regulations that mandate emissions reductions and incentivize sustainable practices. ✅ 𝐈𝐧𝐜𝐞𝐧𝐭𝐢𝐯𝐞𝐬: Tax breaks, subsidies, and grants to encourage private investment in climate solutions. ✅ 𝐍𝐞𝐰 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐭𝐨𝐨𝐥𝐬: Instruments like green and blue bonds, blended finance, and carbon markets to de-risk and attract capital. 🌍 Help amplify sustainable solutions for the planet and share this post with your network! ---- 𝐹𝑜𝑙𝑙𝑜𝑤 𝑚𝑒 𝑓𝑜𝑟 𝑚𝑜𝑟𝑒 𝑖𝑛𝑠𝑖𝑔ℎ𝑡𝑠 𝑜𝑛 𝑡ℎ𝑒 𝐵𝑙𝑢𝑒 𝐸𝑐𝑜𝑛𝑜𝑚𝑦 #BlueEconomy, #ImpactInvesting, #SustainableFinance, #InvestingForGood, #FinancialInnovation, #ClimateFinance, #OceanEconomy, #Sustainability, #RiskManagement, #FutureOfFinance

The world’s most vulnerable countries bear the brunt of a #ClimateCrisis they did not create, underscoring the urgent need for a “fit for climate” global financial architecture. Additionally, #Africa requires $2.8 trillion in climate financing (it is currently receiving 3% of global climate finance), and it only accounts for 3.8% of GHG emissions. How do we establish a new climate-ready global financial architecture? Here, we share some steps that could spur climate action & help limit global warming: ✅ Tackle Africa’s debt situation ✅ Reform the MDBs ✅ Redirect investments to a green transition ✅ An ambitious #IDA21 Read more on my joint op-ed with Ghana Minister of Finance and Chair of V20, Ken Ofori-Atta: https://lnkd.in/eB57VyJ9