LSE: Public Lectures and Events

Episode: "Climate Finance and Investment in Low-Income Countries"

Date: September 24, 2025
Host: London School of Economics and Political Science

Episode Overview

This episode brings together leading academics, policymakers, and practitioners to discuss the pressing issue of climate finance and investment in low-income countries. Framing the conversation within both global policy shifts and on-the-ground realities, the panel addresses the challenges and opportunities for climate-aligned development, the mobilization of trillions needed for the green transition, the reform of multilateral development banks (MDBs), and leveraging private sector capital—all with an emphasis on inclusive, sustainable, and resilient growth.

Key Discussion Points and Insights

1. Framing the Issue: Climate Finance as Development Investment

(00:14–16:50) Lord Nick Stern

• Integrated Challenge: Climate finance must serve the purpose of sustainable investment, not as isolated funding but as a driver for development and meeting SDGs.
• No “Horse Race”: “There’s no horse race between climate action and development. Quite the opposite... strong, clear climate action ... actually drives development.” (12:27)
• Investment Types: Emphasized the need to invest in physical, human, natural, and social capital.
• Adaptation vs. Mitigation: Both are essential; “adaptation is managing the unavoidable and mitigation is avoiding the unmanageable.” (13:52)
• The Paradox: Climate science warnings have become more dire, but technological solutions are more affordable and effective than ever.

2. Climate Finance Gaps, Opportunities and Priority Sectors

(16:50–27:22) Vera Songwe

• Investment Gap: Low- and middle-income countries are projected to contribute a third of emissions by 2030; closing the investment gap and ensuring it is green is crucial.
• Nature and Green Investment: “We forget the nature part… I wanted to start by putting the nature part front and center in this conversation.” (16:51)
• Blended Finance: Advocates for blending concessional, grant, and private capital to address challenging investment areas such as nature-based solutions.
• Learning from Experience: Protecting existing forests can have greater immediate impact than only reforestation; older trees are more effective carbon sinks.
• Cost of Delay: Cites China’s green transition as illustration—it’s more cost-effective to invest in green assets early.
• Fiscal Space and SDRs: Urged for increased use of IMF Special Drawing Rights for climate investment in recognition of the current crisis.

3. Policy and Practitioner Perspective: Mobilizing and Targeting Climate Finance

(27:32–38:22) Melinda Bohannon (Director General, UK FCDO)

• Evolution of Development: Climate is now central to development policy—poverty eradication and climate resilience are inseparable.
• Three Objectives:
  1. Mobilize Larger Finance Volumes: ODA levels are a “drop in the ocean”; must leverage and multiply.
  2. Unlock Private Capital: Scarce grants should catalyze more risk-taking and private flow.
  3. MDB Reform: Push for increased capacity, more flexible instruments, and capital adequacy reviews.
• Strategic Actions:
  • Reform ODA budgets to absorb risk and enable leverage.
  • Invest in project preparation and local bankability.
  • Design smarter risk mitigation instruments (guarantees, currency hedges).
  • Support domestic finance and green capital markets.
  • Push MDBs to publish clear targets and scale sectoral blended finance.
• Practical Examples: UK ministry working with BII and institutional investors to strengthen green policy frameworks, signal stability, and support deep local markets.

4. Country Case Study: Indonesia’s Social Protection & Implementation Challenges

(38:22–47:46) Dr. Dhano Sudarmo (SMERU Research Institute)

• Social Protection Success & Gaps: Indonesia made strong progress reducing poverty through targeted cash transfer and community-driven development. Now faces fiscal constraints and regressive subsidies that undermine climate adaptation.
• Implementation Deficit: “Reality [of climate adaptation] is a different story because the implementation sometimes is fragmented, working in silos, coordination is lacking.” (40:46)
• Policy Recommendations:
  • Reform regressive energy subsidies to free up fiscal space.
  • Invest in adaptive social protection for informal workers (60% of labor force).
  • Direct more resources to locally led, climate-smart interventions.
• Knowledge Gaps: Better scientific understanding needed on the poverty-climate link and on what specific investments most effectively protect and promote resilience for the poor.

5. Private Sector Role & Just Transition

(47:57–58:44) Prof. Chris Woodruff (Oxford/CEPR, BII Board)

• Leverage Needed: “We have to be doubly clever about what we do and how we leverage things. We’re going to need…the private sector to do everything it’s able to do.” (48:16)
• Energy Transition Challenges: Despite project “bankability” in energy, investments aren’t coming fast enough due to need for complementary investments (transmission, storage) and regulatory certainty.
• Solutions:
  • Regulatory reform to unlock markets (example: South Africa’s grid access opens wave of private investment).
  • Mobilizing local capital (especially pension funds) is game-changing for local knowledge, voice, and currency.
  • Technological optimism: Small investments (e.g., AI-driven ag-tech, water storage) create large-scale adaptation impact.

Notable Quotes & Memorable Moments

On the Integration of Development and Climate Action

• Lord Nick Stern:
  “There’s no horse race between climate action and development. Quite the opposite… strong, clear climate action…actually drives development.” (12:27)

On Nature-Based Solutions

• Vera Songwe:
  “The older the tree, the more carbon they sequester. We need more knowledge…how can you make nature an investable asset?” (20:20)

On Finance Gaps and Leverage

• Melinda Bohannon:
  “Even at 0.7 [ODA target], it’s a drop in the ocean compared to what we need…leverage is the name of the game.” (29:40)

On Domestic Investment Constraints

• Vera Songwe:
  “In Africa, it’s about $70 billion just sitting there. Because of regulations, this is dead money in the system.” (67:29) “Even when we try to give clean cooking stoves, we’re asking [women] to borrow at such a high cost that it is impossible.” (69:30)

On Removing Subsidies and Political Feasibility

• Dhano Sudarmo:
  “Educating people is important…compensating people who get hit by removal of subsidies is critically important.” (78:46)

On Political Will vs Private Sector Behavior

• Chris Woodruff:
  “We used to worry about greenwashing; now we worry about the opposite…look at what they’re actually doing, not just what they’re saying.” (83:51)

On the Spirit of Collaboration and Urgency

• Lord Nick Stern:
  “There’s a spirit on the platform that says yes, we can…there’s so much that we can do, but you have to take your jacket off. It’s hard work…The biggest barriers now are economy, society, and politics.” (88:13)

Important Segment Timestamps

• 00:14: Introduction and framing by Nick Stern
• 16:50: Vera Songwe on integrating nature and closing the finance gap
• 27:32: Melinda Bohannon outlines policy, MDB reform, and on-the-ground strategies
• 38:22: Dhano Sudarmo’s Indonesian case study & implementation challenges
• 47:57: Chris Woodruff on just transition, private sector role, energy, and adaptation
• 61:49: Discussion on leveraging local and small-scale multipliers
• 66:50: Vera Songwe on macro-level solutions, Basel rules, and cost of capital
• 72:08: Melinda Bohannon on MDB reform and the UK's strategic influence
• 75:16: Audience Q&A: Subsidy removal, risk assessment, UK private sector, China’s role
• 88:13: Closing reflections from Nick Stern

Q&A Highlights

- Removal of Fuel Subsidies (Indonesia): Success hinged on data-driven compensation for affected poor populations, transparent communication, and political backing.
- Embedding Nature and Climate Risk in Financial Analysis: IMF and World Bank working to include climate risk in debt sustainability frameworks, with expectations of G20-led changes soon.
- Western Banks and Net Zero: Political reality complicates bank commitments; need for stable regulatory frameworks to incentivize lasting private sector participation.
- China’s Role: Western finance remains relevant; the magnitude of the green transition requires collaboration among all major economies, not rivalry.

Conclusion

Key Takeaways:

• Climate finance isn’t a sideline—it is at the heart of sustainable development and poverty alleviation.
• Closing the financing gap requires urgent action, innovation in financial instruments, reform of multilateral banks, and true leveraging of private and domestic resources.
• Local knowledge, context, and empowerment are vital, both in adaptation investments and in reforming larger financial frameworks.
• The world faces a paradox of growing risk and expanding opportunity—solutions exist, but require urgency, creativity, and political will.

Call to Action:
Panelists unanimously call for the next generation of students, researchers, and practitioners to bring their expertise and innovation to bear on climate finance challenges—“this is urgent and we need all the brains on this.” (36:30, Melinda Bohannon)