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A
Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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B
Welcome, everyone. My name is Robin Burgess and I just wanted to welcome everyone on behalf of LSE Environment Week, which is hosting this week of events, and just want to say two things on that. The first is that it came out of a set of PhD students wanting to study environmental economics and then morphed into this huge conference which now comprises about 30 academic talks, four sets of keynotes and three evening events. And I think what's kind of special about it, and particularly this year, is that it's kind of a place where we've been bridging between environmental research and environmental policy policy. And many of the team here in the previous evening events are working with the COP30 President on the kind of action agenda there. So I think, without further ado, just wanted to welcome everyone. Thank you so much for coming. It's great to see all of you here and then thank you. I'd also pass to Nick Stern, who is my PhD supervisor, so we have a close relationship and to introduce the panel and take time. Thank you.
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C
Very good.
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B
Thank you.
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C
Thank you, Robin. Thank you very much for organizing and for creating what is now an institution which is the LSE Environment Week. And it's a particular pleasure for me because I've got four good friends on the platform that we're going and we're going to share the discussion amongst ourselves. But I have some little bit of housekeeping to do first. The event is being live streamed, so if you do make an intervention, it will be there for posterity. We have time at the end, we hope about 20 minutes for questions from you. So please be thinking about a question we might get in. Six, seven, eight questions. We hope also that there'll be questions from the online audience. So in addition to welcoming you upstairs and downstairs, we'd also like to welcome our online audience and they will also be having a chance to put questions. We'll ask you to identify yourself when you make a question, but also to keep the question questions short. There is a hashtag, lse, LSE Environment Week without punctuation. And if you could silence your phones, that would be much appreciated. We are not anticipating a fire drill, so if the fire alarm goes off, then leave by the exits here and go out into Houghton Street. Let's hope that that is an unnecessary observation. Now, I want to introduce our panel very briefly and then I myself will try to frame the discussion and make some observations. Now we're going to switch the order slightly. We will have Vera Songwei who will follow immediately after me and I've had the privilege of working with Vera for quite some time now as co chairs of the independent high level expert group on Climate finance which which was convened at the requests of COP presidencies 26 and 27. That was UK and Egypt but they went on being convened by 27 and 28 and then 28 and 29 and now we've been convened by 29 and 30. There have been four reports he said will be when we finish this one and we promise not to do any more. I've always but we're going to go out with a bit of a spirit splash I hope for COP30 in Brazil. It always makes me laugh that it's the independent high level expert group. I've always been waiting to be asked to be part of a subservient low level incompetent group. But you're always tagged with the idea of independent high level expert group. But we try to do our bit but there are nine have been co chairing right from the early days and it's been a great pleasure to work with you Vera. Then there will be well Vera is the chair and founder of the Liquidity and sustainability facility linked here at lse linked also to Brookings and formerly adviser at the bank of International Settlements and like a number of people here has worked with the World Bank. I did my three years I think Vera, you were a little longer. A little longer than that. You're very welcome. And then Melinda Bahannan who is the Director general Global Issues at the Foreign Commonwealth and Development Office. We're trying to work out what global issues excludes but it just demonstrates the range and depth of Melinda's responsibilities and talents. And I had the privilege of working with Melinda about 20 years ago on the Stern on the Stern Review and then we have. Oh I should say and welcome back to the lse. Melinda msc MSC here at the lse. So there is no limit to how high you can rise with an LSC education. Dano Sumato who again we interacted with that was more than 20 years ago. 25 or so years ago we first fell Vietnam. Absolutely. And he's a senior research fellow at Smero Research Institute in Indonesia has worked on many things but including social protection and poverty. What we used to to call pro poor growth. I'll come back to there's just growth and development. There's not this bit that bit that's what it's all about. And all of us here, actually, we might be talking about climate finance, but we're all development economists in some shape or form, and that's what it's all about. And then we have Chris Woodruff, who is professor of Development Economics at Oxford, Scientific Coordinator for Science, CDO and CEPR on joint research venture on private enterprise development. And you'll be hearing from him. He's been very influential in the evidence around the circumstances which enterprises flourish, but also from the perspective of development economics. They were all development economists here. So let me say a few words and then I'll hand over to Vera. I've already emphasized that this is about development economics. Our subject is climate finance and investment in low income countries. So there will be a focus, rightly so, in this context, on low income countries. But it's climate finance and investment. The finance is for a purpose. It's not just give us the money and will think about how to use it. That never makes sense. It's about finance for purpose. And the purpose is investment. And in this case it's investment for sustainable development within which climate actions sit. But this is sustainable development. It's about the sustainable development goals. Those are the kinds of dimensions that we're talking about here. That means of course, income and so on, but it also means education and health and environment and how we work together. So that's what this is all about. That's what the subject matter is. And this is about sustainability. Sustainability is offering to the next generation opportunities at least as good as you had yourself, assuming they behave in a similar way to those that follow. That's the definition of sustainability. So what determines the opportunities for future generations? Well, it's the endowments they have. It's their capital that means physical capital, human capital, natural capital and social capital. Social capital you can think about being the interrelationships, the functioning of institutions shaped in many ways by inequality and so on. So that's the subject matter. So this is about investment. We'll be talking particularly about physical investment, but I'm sure we'll go beyond that to natural capital and human capital as well. So that's the first thing, climate finance with a purpose. And the purpose is investment that drives sustainable, resilient and inclusive growth. I hope we'll all be arguing, I certainly will, that there's no horse race between climate action and development. Quite the opposite, actually. That strong, clear climate action. The kinds of investments we're talking about, particularly in the energy transition, but also in adaptation and resilience, natural Capital, adjust, transition, that those investments not only are consistent with development, it's actually stronger than that. They actually drive development. And that's a key part of the story. So that idea that there's some kind of horse race between climate on the one hand and development, development, growth on the other is just wrong. We're winning that argument. We haven't won it. And you will see it reoccur and reappear. But it's very important to keep that in mind. I'm going to do. I'm going to be the academic for a moment and I'll say I have a forthcoming book, which is the Growth story of the 21st century, where I try to set out that argument in some detail to show that climate action actually drives growth and then describe the circumstances. A very big part of the story will be creating the circumstances for investment so we can see what kinds of investments we have to make. But will the investment climate, will the environment for those investments be of a kind that will encourage those investments? And that's a big part of what we have to do. That is a responsibility for the nation in which the investments are taking place. But there are lots of ways in which others can help that, including the development assistance, but also I think, particularly the multilateral development banks. But the climate for investment itself is extremely important and I'm sure our panelists will touch on that. There's also no horse race between adaptation and mitigation. Adaptation is managing the unavoidable and mitigation is avoiding the unmanageable. So mitigation is largely about cutting emissions and the whole idea. The spirit of what we're talking about here is adaptation, mitigation and development all come together. Now think about mangroves. Mangroves capture, they're very good at capturing carbon. They give you protection against storm surges. That's adaptation and resilience. And of course, adaptation and resilience. Protection promotes development, but also they enhance the shrimps and fisheries and if you like your tigers, they encourage the tigers and that encourages the tourism and so on. Mitigation, adaptation, development, public transport Mitigation, adaptation, development, restoring degraded land. Mitigation, adaptation and development. Decentralized solar mitigation, adaptation, development. So it's very important to see these things as coming together. Nevertheless, in low income countries, the challenge of adaptation and resilience is particularly. One of the great injustices of all this is that the people who've done the least to create the problem in terms of past emissions are also the people who are most vulnerable. So when we Talk about low income countries. It's very important to keep the adaptation and resilience story to the fore. And there of course investment can be quite difficult to organize. On the private sector side, I'm sure that would be something that we'll be coming back to. So on the sources of finance, I'm not going to develop that, but I'm sure Vera will have more to say about that. But then of course, it's very important to think about domestic finance. Most nations, rich or poor, finance their investment from their own savings from their own resources. Now the fraction will vary and it'll be more difficult for poorer nations. But still domestic resource side is very important. But so too will be the international flows, private sector, multilateral development, banks and concessional money. I won't develop that because that's exactly what Bira and I with our colleague Amar Bhattacharya have been working on for a long time. For a long time now. So let me finish on a sense of urgency. The when we did the Stern review of 20 years ago, now we just had the assessment review three from the Intergovernmental Panel on Climate Change, the IPCC. Now we've gone to the assessment review six. We've had the comparison by the IPCC between 1.5 and 2 degrees and we've now got assessment review seven. Each time you look, the worse it gets. The proximity to tipping points. Tipping points. The collapse of the West Antarctic ice sheet or the Arctic ice sheets, the collapse of the Amazon forest, the thawing of the permafrost, the way in which the ocean currents could be completely rewritten. We thought back in 20 years ago that those tipping points would start to kick in as we approach 4 degrees. It now looks as if those tipping points will start to kick in when we're 2 or 2.5 degrees centigrade. Every time you look, the worse it gets. Partly that's because of course, the emissions have gone on rising, but partly it's the deepening understanding of the science and just how fragile some of our atmospheric and oceanic systems really are. So we now have a paradox where the science has got worse and worse in terms of the risks that it's describing. And the technology has got better and better in terms of what we can do. You can now produce electricity at one or two years US cents a watt, sorry a kilowatt hour. You can produce solar panels at 10 cents a watt if you're producing. If you're investing for gas, it may be 50 cents or a dollar a watt. And then you've got to buy the gas. So the technologies now, electric vehicles now are much better and cheaper than the internal combustion engine. There's a paradox is the science got worse and worse, the technology has got better and better. So the urgency has become more strong, the opportunity has become much bigger. And that's precisely the moment when a big part of the international public discussion has got diverted by other things. But objectively, the case for action is now overwhelming. The challenge, of course, is to make it all happen. And that's what our panel is going to tell us all about, starting with Vera.
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D
Good evening.
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76650. It's always a pleasure to come after Nick because he sets the stage so well for what needs to happen. And I think as he spoke about the tipping points, I was thinking, yes, indeed, I come from Cameroon, which is part of the Amazon. And yes, we are seeing a lot of, sorry, not part of the Amazon, part of the peatlands of Africa and with Brazil we have the two sort of carbon absorbing parts of the world today. And we did think that humankind could go ahead and do a lot of bad things and you know, the peatlands and the Amazon will at least continue to save us for a while, but we are also beginning to hurt that part of the world. And so it's very important when we talk about the climate conversation. Oh, sorry, sorry. Okay. Yes, now I can hear myself. It's very important. That's why you were standing here. I wanted to stand here so you can see me better. Now I understand why he was standing here. I was like, why he's standing behind upon you. Okay, I was thinking a lot of times when we talk about climate, we forget the nature part. So, so I just wanted to start by putting the nature part front and center in this conversation. And today two things are happening that are really important. The first is that, yes, the developing countries and a lot of the emerging countries, we're talking about low income countries. But even in Africa now, more than 70% of the countries are low to middle income countries did not contribute to the full former carbon emissions. But because there's huge rise in incomes and a desire to grow and everybody is trying to make sure that they can do as much as they can. We are beginning to see that between today and 2030, emerging markets, low income economies are going to be responsible for a third of the emissions. So it is very important that we start talking also about what can be done in these parts of the world to ensure that they go from, you know, not being responsible to another tipping point will be when the low and middle income countries become the larger emitters because the advanced economies would have understood what to do and done it. Hence some of the discussions on the ceba. And I say this in the common border adjustment mechanism. I think that what we are looking for and what once we have this conversation, so you have that particular problem. Low and middle income countries in the next 10 years are going to be responsible for a third of the emissions. But low and middle income countries, we want to become developed advanced economies. We want them to deliver prosperity. And this race to growth, this race to development requires investment, it requires financing. And the argument that we are all making in the report with Nacon, it's been amazing pleasure and a learning experience of course to work with Nick and all these reports is to say where does the financing come from and why do we need the financing? We need the financing because we need to close those investment gaps, the huge investment gap that is needed for low and middle income countries to become advanced economies. But we want to make sure that that investment is green. We want to make sure that that investment is not an investment that continues to pollute. So yes, growth, yes, development, but please, green is really what we are trying to say. And make sure that you bring in the nature part of the conversation. Nick spoke about mitigation and adaptation. And I was very happy because one of the things that I think there has been a dichotomy now, you know, let's go do mitigation, let's go to adaptation. And if you say adaptation then the financing sector and the investment sector says oh, we can't do it because there's no rate of reduction. But if you assume that even energy is adaptation, then eventually we begin to talk about how can we bring collective assets together. And this is where the private sector, I'm so happy to see some of the private sector in here. And I think this is the part that is those of us in the finance system are looking at. We have the multilateral development banks and I'm going to, I go through. So Nick and I have a list of things we have to go through. So I go through them. But I'm going to tell stories in the middle. The multilateral development banks today essentially only have about $120 billion that is needed. In the report that we've done, we say that altogether you need about 8.3 trillion to be able to do global development. Everything the SDGs, you need 1.3 trillion of external financing to close the climate gap. So 1.3 trillion to close the Climate gap of external financing, of which half needs to go to energy. We know that the energy space is something that we know well, we know how to do. We all know how. Everybody in the room knows how to develop bankable or rate of return projects, positive rate of return projects in the energy sector. It is in the other bits of the conversation that we don't know, we don't always know how to develop rates of return. In the nature segment. A lot of the work that we're doing and I, I think since we're in the university environment, there's still a lot of work that needs to be done to say how can you make nature an investable asset? How today can I make sure that I can tell somebody go and make sure that the trees of Cameroon are protected because we need them to make sure that we don't go past the 2 degrees that we need. And that's where you begin to get into what we call blended financing, which is you bring some concession of capital from the likes of the CDOs and the BIIs, you bring some grand capital and you put it to work and make sure that you can begin to develop the technology and the science. We just don't have enough of the technology and the science to be able to measure what is the cost of keeping a tree standing. And so again, an example we always thought, and there is a huge drive and we'll talk about the Tropical Forest Forever initiative that is part of the Bakutu Bell and roadmap is going to be launched at COP30. Just essentially say, let's restore forest, right? So there's a big drive around restoring forest, less of enthusiasm around, let's protect the ones that are standing. However, if you do the science, and there's now new and emerging science that is coming out telling us for the first 10 to 13 years, when you plant new trees, they actually emit more carbon. And so what you really want to do is maybe also think about how you keep the ones the trees. The older the tree, the more carbon the sequester. We need more knowledge, we need more. And so now we're beginning to see more philanthropy coming in to finance some of these things. The next thing that you need to do when we talk about financing is to look at, you know, when we begin to talk about blended and we talk about the $1.3 trillion we have, 1.3 trillion going to energy and the climate finance, transition, adaptation, loss and damage. I think we all saw what happened in California. Essentially in California, almost all the houses went down the only houses that didn't go down were houses that were built to the climate standard. And so an argument that we are making is today the IMFs of the world, and we just finished a report also that Nick advised on is the IMF should begin to include climate and nature in its macroeconomic forecast to do two things when it does that. One is to allow countries the fiscal spirit. Remember that Nick has said this is an investment story of the future. But to do the investment story of the future, you need the resources today. And so the argument is, can the IMF allow for a little bit of fiscal space for countries so they can spend a little bit more of their budget today to build that resilient road? It will cost maybe 3% more to do it today, but when you have the loss and damage, it's going to cost you 7% and there is nobody funding it. And so essentially with domestic resource mobilization, which is part of that financing conversation, countries should be encouraged or given the ability to spend a little bit more of their savings today to make sure that we are not looking for future savings, which is very difficult in this world today. Whether it's the advanced economies or the developing world, resources are scarce because growth is actually not delivering as much as we want would like it to do. The other thing that we've shown in one of the reports that we've done is when you finance today, then the cost of reducing emissions or the cost of developing a green economy is much cheaper tomorrow. And the clearest example of that is China. If you look at China over the last 30 years, of course, China was the largest polluter, China was the largest emitter, China invested. And Nick just talked about all the work that they've been doing, the EV vehicles, China is top. China is the greenest country today in the world. But if you begin to see its expenditures on the green side, it's actually dropping because they have already invested in green assets enough. So much so that the cost of future investments is dropping. When Nick and I started doing this report, we used to say external flows we needed 1 trillion. Today we're saying we need 1.3 trillion. That is because we have not been able to keep a pace with the investments that are needed to make sure that we don't deliver on time. And if we continue not to do that, then we will not be able to do well. But one of the biggest constraints, and I think it's part of this conversation today, especially on the environmental side, is that for many of the low and middle income countries, we need Models we need the scientific knowledge and the analysis that tells us investments in seawalls is a good investment and that it's not destroying maybe the, the upper coastline or the lower coastline. And this kind of scientific work is not yet there. And that's what, you know, a lot of the people who don't invest in the climate space talk about greenwashing and green is because the science is not there until we can monitor, we can produce the right resources. So if you as students working in the environment, nature, economics field can begin to do some of this work, I think you will be able to help drive the investment that goes there. And the last part of the financing that I wanted to talk about was what we can do with the IMF and special drawing rights. This is my last plea. So I talked about MDBs, I talked about domestic resource mobilization, I talked about the private sector and how we can leverage private sector mobilization. We'll talk about it a little bit more. But there are instruments in the global financial infrastructure that can provide additional capital to, to make sure that we do this much faster. And one of them is the special drawing rights. And we hope some more work is needed. Actually in this piece of work we are arguing that there has never been a bigger crisis in the world than the climate crisis. And the special drawing rights were meant to be released when there was a crisis. And so we need a little bit more work and a lot more advocacy on why it is time to do that and to do that today. Thank you very much.
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C
Thank you.
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D
Brilliant. Thank you. Gosh, it's a real pleasure to speak at the LSC and to follow two such distinguished academics, authors, friends. And it reminded me, it was about 30 years ago that I was sitting where you're sitting as a postgrad at the LSE and my favourite seat was roundabout there, which was close enough to the door so I could bolt out if I was too scared of all these professors were telling me when I didn't understand it, but it actually made me reflect that when I started working in development, how different the story was. I think Nick, you would agree that, you know, at the end of the 90s the primary purpose was human development and poverty eradication and environment sort of sat somewhat off to the the side in the original Millennium Development Goals, which I suspect many of you are studying and you fast forward today and goodness, how that's changed. Because what poorest countries are facing is the complexity of the development challenge made ever more complex by the impacts of climate change, the necessity of growth, the necessity of energy Security, the importance of providing jobs for their populations. And I wanted to start there and just recall that that's an important backstory to this, because as we talk about climate finance and we talk about the evolution of the oder budgets, it's not just an add on that we think about in policy speak, it's fundamental to the development story of the world. So I wanted to reflect, to start off with, and I think, as others have said, you know, the challenge is incredibly clear. The poorest countries we talked about, Nick, when you were doing the Stern Review, are the first and hardest hit by climate change and they're paying a price for the high emissions that frankly, they didn't put up into the atmosphere. The deep sense of injustice is the result of that. And the impacts in many countries are intensifying and the biodiversity loss is very visible. This time last year, I was in Pakistan, wandering around in fields just outside Islamabad with farm farmers who were talking to me about these incredible floods that wipe out crops and villages and households and schools. And just within one season, within a week, what can we do about that? Life, these, these once in a lifetime weather events are more commonplace. So these poorest countries are hit earliest and hardest, and yet they still only receive a tiny portion of this climate finance, a little over 10%. And they spent far more than that on debt service alone. So, as I described, the injustice is very clear now. Over the years, recent years, the work of Nick and Vera has been really quite totemic in how we understand the mobilisation challenges behind climate finance. And they've talked about the trillions needed, they've Talked about the 1.3 trillion in terms of external sources. And so it's the job of people like me that work inside government to think, well, how do we do that? How do we do that with the odor budgets we have? How do we do that as part of a political discourse in the UK on what this money is for and why it's worth it, sending all this money overseas. And so I wanted to talk about three objectives that we discuss with our ministers, many of them you've heard reflections of in what Vera said. The first is that clearly we need to mobilise much larger volumes of finance for mitigation and adaptation in the poorest countries. And that has to be part of the modern development finance landscape. So you'll have talked about the ODA budget cuts, you'll hear about 0.7. What I would offer to you is, even at 0.7, it's a drop in the ocean compared to what we need to face the global challenges of today and leverage is the name of the game. And part of that which is second is that we need to unlock private capital as efficiently and responsibly as we can so that that concessional resource, that grant finance is used where it has the most impact. It's a very precious resource. Sending free money overseas in this political climate, not very easy. How you use it, how you target it, how you mobilise with it is a key part of your narrative. And then third, it's how we reform the multilateral banks, the World bank, the regional development banks and others so they're better aligned to the needs of the poorest. There's many more things as well as Vera talked about, special drawing rights and so forth are all part of this mix. So in terms of what we do, what's our strategy? Well, as I described, the first is about reforming how we think about oda. We know that development budgets and climate budgets need need to be redesigned, they need to absorb more risk, they need to leverage more private capital, they need to support local bankability. And public congestional finance should focus where the returns are uncertain, but the development value is highest. Resilience, early stage grid upgrades, micro irrigation, mangrove restoration, as Nick was describing. Urban flood defences, the ones I was talking about just outside Islamabad. These are the places where the catalytic capital has the highest social return. The second is fixing the pipeline. What do I mean by that? It's that project preparation is key, there is capital in the world. Bankability of projects is still a challenge that so many developing countries face because they don't have the resource to build the project pipeline, to make it bankable for institutional and other investment at scale under preparation. Lack of local currency structures, no credible revenue streams. These are the problems that we most often hear. So we have to scale up the way in which we use and we invest in project preparation facilities, technical assistance, procurement, contract design. All those things are linked then to blended finance windows so that preparation costs are covered without exposure. Exhausting concessional grants. So fixing the pipeline. Third, designing smarter instruments for risk and return. Things like guarantees first loss equity, currency hedges, insurance mechanisms. These are the things that really can create investable assets for large scale investors. Institutional investors, pension funds, pension fund from Canada in to talk to me today about how they're thinking about the way in which they develop their instruments for frontier markets, Pooled guarantees, facilities, local currency debt products, all these things which match investor appetite whilst protecting our balance sheets. These things need standardisation, they need transparency and they need to get to scale. Fourth, mobilising domestic finance and local capital markets. So this is the part which is about countries doing what they need to do to make domestically mobilizing their resources, implementing effective tax regimes, building local capital. The absence of local capital markets is really a binding constraint to many things growth and development related. So we need to strengthen that mobilization. We need to build support countries to build their green taxonomies, develop local currency deep in those markets, develop local currency bond markets and so forth. And then fifth, the MDBS reform is really key. So reform proposals have a concrete set of a sort of menu of things which we know the MDBs need to do. Capital adequacy reviews and balance sheet optimisation. We want them to set clearer targets for the way in which they mobilise private capital and how they differentiate. We need them to differentiate more the instruments that they have for low income countries. The Bridgetown Agenda, which many of you will have heard about, probably are studying, has called for the MDBs to increase their capital and resilience lending by very large amounts. And that's what we're pushing. So specifically we want the MDBs to deepen capital adequacy reforms.
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A
We're prudent.
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D
We really need the MDBs to expand lending capacity by using guarantees and risk transfer and more effective use of callable capital. Set and publish private capital mobilization targets, especially for the low incomes. Scale blended finance at the portfolio level, not as one off deals, but find ways in which to set up sectoral and regional pooled blended finance windows that can operate at scale. And then lastly prioritise local currency lending and de risking facilities as I described. That's what we need. The MDBS to many other actors have a role in this, that's clear. British international investment. I see the CEO of BII sitting in the the row. They can all mop him after this conversation, ask him what he plans to do. We're going to work with BII over the next couple of years to really scale what they're doing on climate finance, private sector collaboration. I described working with institutional investors, others in the City of London we have a ministerial task force that's working with several CEOs in the city to really figure out what we can do on regulation, on better data access, how to innovate with new investment projects, products. We need more country level action in the way I described. And all of those things need to come together around sharper defined, more clear policy frameworks, reliable policy frameworks in partner countries, price signals for renewables, clear land and water rights Predictable fiscal regimes and so forth. Debt sustainability absolutely key. This is about the way in which we reform the low income country debt sustainability framework and make sure that we are capturing nature and climate risks. The IMF currently don't do that. If they did, it would be a lot clearer and a lot more transparent for countries to think about where they reach the ceilings of their debt sustainability and their debt burden carrying capability. There are many, many things to do and the UK government is pushing across all of these things, Both for the MDBs but also here in London and internationally as we lead to Belem and beyond. So in conclusion, this is important. The agenda is new still in terms of the financial sources and mobilization that we need to get our heads around and mobilize. And it's not just about what the UK does, it's about what we're able to do with the G7, including where we can take the US, what we can do in the G20 at the MDBs and at the COP. But quite clearly, for us to be a serious development climate act, it's not just about our rhetoric. It's about how we talk about solidarity. It's about these technical financial fixes really thinking hard about how we can go further. And so for all of you, if you have thoughts and ideas as you go through your studies, as Nick described, this is urgent and we need all the brains on this. So please feel inspired to think about it further and to follow up this conversation. Thank you.
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E
Good evening everyone. It's great to be here. Good to see you again. Next. First time we met 25 years ago when he was still with the World bank where he taught us about how to operationalize proof, workload and theory remain alive and we use it. Sri Moyani, when she was a Minister of Finance, always asking us about just show me about the crude incident curve. That's, you know, you taught us about how good is our fiscal policy actually working in addressing poverty. But before I bring my story from Indonesia, first of all I would like to thank Professor Robin Burgess for his generous and kind invitation for me to attend this Environment Week at LSE and also center for International Group at lse. I'm very grateful. I have learned a lot over the last three days. And when I first met Professor Robin Burgess, he visited me at Vice President office. I was a policy advisor of Vice President Budiono. And then the next vice president was 15 years before I went to Harvard Kennedy School where I thought and wrote a book about the story of Indonesian policy making on poverty reduction program. So Robin Was asking about how did you do it in in terms of bringing poverty into the mainstreaming policy making process in Indonesia. Where every year the president announced about how did Indonesia in terms of poverty and social protection. And then when I was at Harvard, the first paper we presented with Rosari Mahana, they also asked the same thing. How did you do it in terms of bridging your research into policy? Because we did almost everything under the vice president of expedition was actually requested by him to understand better about the mechanical poverty reduction in Indonesia. So that's my story. So we have done a great job in the social protection, in introducing protection. And social protection has been very, very useful in helping poor people coping with daily race and also climate. But it's not enough under all the pressure in terms of, you know, growing concern, but also climate issues in Indonesia. I think that's the story I would like to bring into the table. We have done a lot of planning under the national planning babanas and also Mr. Fannan of doing this climate adaptation, having a lot of strategy of green growth and things like that. But that on paper was great and I was also involved in doing that. But the reality is different story because the implementation sometime is very fragmented. Working in silos, coordination are lacking. And that's happened when it comes to this climate related issues. So now what is the story about social protection and how can we talk about it in relation to the climate finance in Indonesia? So over the last 15 years Indonesia has been doing great in terms of poverty reduction. From at the peak of 1998. If you recall at 1998 poverty increased by double from 11% to close to 25%. And now poverty is only about less than 9% today. And according to the latest World bank poverty assessment, Indonesia is close to eradicating extreme poverty which is about five years ahead of the ICG in 2030. So we have in fact has a lot of research better understanding about how policy work. That's why Indonesia now is considered to be one of the success story in introducing protection where we cover cash transfer of the bottom 25%, both conditional and unconditional. We have established one of the biggest social history in the world covering almost 90%. This is through studies of the studies. That's the paper that Abhijit and Ben wrote about community targeting versus proximity testing that we applied in real life. And then we also had this Philips fund that if you recall when you were in Sulawesi 25 years ago on doing this Kachamatan development program, the graduation of that is actually now became a Village Fund. There are something that we need to think about it. Because KDP Jamal Development Program 1 was one of the biggest community driven development in Indonesia. It was imported exported to Afghanistan or so many other countries at that time. But so in terms of the pipeline we do have that we have a social registry that can be deployed fast. We can transfer money to the Philips fast because we have all the pipeline. But the problem is our tax to GDP ratio is still very low. But 10% and we are having problem fiscally. That's number one. Number two, actually we also still have this so called relatively regressive subsidies including fuel, LPG and then fertilizer who is not very environmentally friendly. And we need to do that reform so that we have fiscal space to have more adaptive social protection program. As you mentioned, we have a static program now static cover bottom 25% of our population. Free education for the bottom 25%. We also have coverage held for the bottom 40% through subsidies from the government. But they are not designed for this adaptive social protection. So we need to invest more so that people can invest in the future to. You know, to deal with this crisis in the future. So that bring me to what needs to be done in terms of knowledge, in terms of I can talk about. I think this is already people knows about the story of international financial gap, about what we have been trying to get international support of our NDC or even we spend a lot of mitigation only cover less than 12% of what is needed. We did everything we do, you know, using a budget tagging and then tax subsidies to track more resources so that we can have more better productive policy. But yet it's still not enough. But we have. We can start with a very easy one is reforming our regressive subsidies, fuel subsidies and then make use of our transfer to the village more climate friendly program. And then. But there are some issues that we still do not know much in terms of. First is that policy that prevent people from falling back into poverty. This is what so called graduation program. I think Professor Robin have that many story from Bangladesh and also India is scaling up one of his programs to invest more so that people can cope in the future. And then also inclusive safety net that cover informal workers. But 60% of our labor force are actually in the informal sector and they are not well covered in terms of insurance. And then smart approach to the planning public and private finance. And finally we also need to understand better in terms of the impact of the climate on poverty. So I think that's very much what I would like to bring to the table even though this is about climate finance, but these are all related to the climate finance. So how can we use existing resources domestically to be more smarter and also forward looking so that we can prevent protect people poor to invest their future so that they can adapt and they can also adjust to the changing climate. And this is real story. I think I have a picture, I have a slide actually I sent it to Professor Rabin Burgess about the flat just in Central Jakarta. It's not far from the hotel we used to stay and also Chin Lipstay. It's a big. It happened quite frequently. It actually hit the most of the poor. People living in the center didn't get affected much but people a kilometer from that center actually got hit by this climate crisis in Indonesia. So that's very much what I would like to get your reaction on. Where are we heading in terms of climate adaptation and also climate finance. But we need this mostly on how do we know better? How can we invest in knowledge so that Indonesia can spend better smarter? Because you know, we actually not very poor. We are rich in terms of budget, we have a lot of money but sometimes the way how we spend money are not very focused on investing in people. I think you started very beautifully in terms of, you know, talking about climate finance must have a purpose. What is the objective of talking about this climate finance? Protecting people sustainably. Right. So that's the way how we need to frame our understanding about climate finance. Not talking about billion dollar there, billion dollar here, there. But if it doesn't have any impact that will be catastrophe. That's why I like the great deal that our colleague and then propose about transferring money directly to the people and also the community. This is going to be the top 30 ideas for the future. Let's hear more about that one. Thank you so much.
- [47:47]
C
Thank you.
- [47:58]
F
Thank you. And I also want to add my thanks to Robin and to Claire Balboni who helped organize the session as well and wasn't able to be here, isn't able to be here tonight but was instrumental in that. And thank you Nick for the introduction. And you know, I'm humbled in a sense to be on the company of this panel. I'll make a few remarks with actually kind of two hats on. One is as an academic, a professor, as Nick noted, I've run for the last 15 years private enterprise development Low income countries research program that's been funded by DFID and now fcdo. I'm also on the board of bii. I'M gonna duck behind the screen here so I can't see my CEO sitting down there. But I'm also on the board of bi and I'll also talk about some things with the lens of that experience as well. And I guess, you know, it's kind of been said, you know, there's not enough money. Suddenly the last 12 months, everything, a lot of things have changed in terms of development assistance and so forth. So, and there's arguably more to do. So we have to be, you know, doubly clever about what we do and how we leverage things. We're going to need, as the other panelists have said, the private sector to, to do everything it's able to do and to bring in and to leave whatever resources are left for the things that the private sector can't do so well that the government really needs to pick up. And so I want to talk about, you know, the just transition more generally, but I'm going to focus a bit on the energy transition and then talk a bit about adaptation, resilience. And I'll agree with Vera that we know very well how to the energy sector is easy in a sense, or it's easier. We know how to design power projects and yet I'm going to argue that they aren't coming fast enough and the bank oil projects aren't coming fast enough. And I don't think it's just that the money's not there to meet them. I think they're not coming and we want to kind of try to think about why that is and how we get there.
- [50:12]
D
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- [50:39]
F
So I think there are two challenges in this. Neither of them, by the way, is unique to, to lower middle income countries. I worked for a power company in the US when I started my career. We faced some of the same challenges even in the regulatory system in the US and certainly we face some of the challenges now in the US and here in the UK as well. The first is that when we think about moving to a grid that's renewables, we need a lot of complementary investments. In some senses, generation is the easy one. But we also need much richer and denser transmission networks. We need smart meters and we need Storage. And while we understand something about how to regulate power generation, regulation and markets for the other three are still a bit nascent and we really don't have enough kind of knowledge about how those work. So in this context we, you know, by the way, you know, we talk about mobilizing capital and mobilizing the private sector. I want to make one comment about transmission and calling on sort of the research that's out there. Sometimes what we mobilize when we make an investment is not more bringing capital into that investment, but bringing capital into things that that investment enables. And so there's a, a very interesting paper from Chile where there was, where the area that's suitable for solar is not near the area where the demand is. That's not uncommon by the way. And as of when a transmission line was built, it generated massive investments in generation of solar. So that's also mobilization in a sense, although it's not the way we usually think about mobilization. But I think these sorts of complementary investments that need to be made are ones that are also going to crowd in investment. We need to think about that. The second issue again, which is not unique to low and middle income countries, is that generation requires large sunk investments that are made up front. And when there's a single off taker, when there's a single pass company that you sell to, the investors face what economists call holdup. That is once the investment sunk, then the regulation can sort of begin to take some of that away. And again, there are lots of examples of this in lots of places around the world in countries of all income levels. So this is not a lower middle income country issue, but it's one that we need to address. So how do we address this? We need, as Melinda said, regulation. We need to create markets where we can create, where we can create markets and the markets that give investors some certainty. So how do we get this? I'm going to sort of close this part of this with three sort of, I think optimistic, somewhat optimistic pieces. One is that governments are increasingly allowing markets to work. And I think, you know, South Africa has in the last couple of years made regulatory changes that allow companies to wheel power across the grid and sell not to Escom, not to the state power company, but to other consumers. So there are now companies that are aggregating generators on one hand and aggregating customers on the other hand and you know, selling the power across one to another. And you know, BII and Pidge are co invested in one of these companies trying to support this. And I think these are the kinds of things that we need to look at. If you look at generation projects in South Africa, kind of not much was happening until last year and there was quite a lot of investment projects that were started last announced and started last year in 2024. Most of those not selling to Escom but selling to other, selling wheeling across the grid and selling to other commercial industrial customers. So those are the kinds of things I think that we need to think about that will provide more stability in the markets. Second, for many reasons where we we're seeing, we need to see increased participation by local investors, pension funds and others. So you know, Nick said this, that countries usually invest their own savings. That's where the investment comes from. Pension funds in a lot of these countries have enormous assets. They're often restricted in what they can invest in. That's beginning to change and we're beginning to see more production participation by pension funds in particular. And this I think is really game changing for several reasons. One is its local knowledge, two is its local voice and three is its local currency. And those are all things that are going to be important. These partnerships that we need to develop with local investors, with local pension funds and so forth are going to be crucial. The third reason I think for optimism is the Mission 300 project, the World bank which is putting a lot of focus on regulation structures, things of that sort. We'll see where it goes. But countries are at least stepping up and saying they're going to do things to reform the regulatory system and so forth. And that may, I think there's reason to have some optimism, to have some optimism about that. Let me close with just a minute or two to talk about adaptation, resilience. I think this is a harder place for the, for the private sector to invest at. But again there's some optimism in this. You know you can do a lot with a little bit of money. So bi other DFIs are invested in a couple of companies, Crop in Apollo Ag that use AI to help fund farmers adjust to climate change and for thinking about inputs when to plant and things of that sort. These aren't trillion dollar investments. They aren't billion dollar, they're tens of millions of dollars investments. They're small but they're leveraged and they reach, they have huge reach. And so the sort of technology that we're able to bring to some of these things. There's a reason to think optimistically that there are some things that we can do that don't take huge amounts of money. The place where I think we Want to think about how we do more are in things that give individuals assets to be able to themselves become more resilient. So I'm thinking about things like solar irrigation water tanks. We have a project we funded in western Kenya that's given giving water tanks to Michael Kramer and co authors of giving water tanks or financing water tanks for dairy farmers makes a huge difference in the dry season and what they're able the milk production. How can we work with banks to make loans, those sorts of loans to be able to do that? One of the issues with those things is it's very easy to come up with what's the right thing to do with climate mitigation. Climate adaptation. Resilience is very context specific and so I think we've struggled with taxonomies of are we doing something that's actually positive or not. But let me close with that. And again, I think the task is obviously big, but you do begin to see some changes that are being made that I think that there are reasons to be optimistic about. So thank you very much. I look forward to the conversation.
- [58:45]
C
Thank you so much to all our four panelists. I think you can see that there's a richness of experience and a richness of thought both in what they offered us this evening. I think we could spend just maybe 10 minutes talking amongst our ourselves and then we'll open it up for, you know, roughly 15 or 20 minutes for interaction with audience. Let me kick off with one or two questions. There was agreement. This was all about investment and of kinds that we more or less understand. We've got a lot more to understand and as we get on with the job, we'll learn along the way. And we're thinking about finance in relation to those investments, investments for change, investments which are very different, not the investments of the last century, but the investments of this century. That was the way I think we had a shared definition of the challenge of climate finance. All of us in some shape or form spoke about multiplication leverage, getting more. And I wondered if we could have a discussion of some of the specifics of how you make that happen. And I thought, Dhano, if I could start with you. I mean, you know all about the World bank and multiplying through the MDBs, but I was interested in multiplication at the village level through activities. And Chris gave us an example of the, the tanks for the dairy farmers. If you help get that going, then the dairy farmers invest a lot themselves in their cattle and their activities. And you mentioned that 25 years ago I was in South Sulawesi on the Quechematan development program. And for those of you who don't read about the Quech Matan development program every day, what essentially and it was a very effective idea is that you give relatively small amounts of money to a village or a small community, a Kashimatan district, and they decide how to spend that money. And the ones I visited, I don't think they were particularly unusual. One village had decided to sink a well. Another village has decided for largely women, very small entrepreneurs, they would help them with initial purchases of cloth. And then of course the family kicks in and they kick in and they develop and they're very entrepreneurial. And that gives you another kind of multiplier. And we'll talk about other forms of multiplier. But if you could talk a little bit more perhaps Chris, also because you raised it directly how you get that kind of multiplier where small entrepreneurs, very small scale, they start to make things happen, including some of their own resources.
- [61:50]
E
Okay, thank you Chris. That's exactly what we have in mind. Lord Nick. Currently we are working with actually with the World bank theme. And good thing is that adb, all of these development partners are also very keen to get involved in this climate adaptation, climate finance through local adaptation. So now in the pipeline is we are working on this so called clean credit which basically empowering small and medium enterprise to have green practices. That's one. But the one that now is on the pipeline is actually getting this local adaptation by sending money directly in the community. And then they decide we have like open menu. But it has to be constrained in terms of, you know, has to be environmentally sound whatever program they're working on. So I think that's that, that's what we are working right now. But the challenge right now is because our current presidents are focusing more on this food security and having more of plan here and there. And it's the challenge is about that problem which basically he would like to only focus on this food security instead of all of this climate adaptation. But we are working on it. We are very optimistic. I think we have a champion within the government that would so called epistemic community. You know, government come and go but all of the bureaucrats working there are still very adaptive to the ideas of having more adaptation and also climate resilience to block grant that we are sending to the village. So this is like a graduation of Pechamatan development program that you also get involved at that time. There are something that we need to tweak here and there because it has been involved, but now it's more dominated by the bureaucrat within the village. So the participation of the social community a bit less right now, but we are working on it in the, of getting traction, of involving community into the system. So again, I think doing climate is about movement. We have to get. We have to have everybody involved in the process so that they know what is best to. Thank you.
- [64:00]
C
Sorry. Thank you very much, Chris.
- [64:03]
F
Yeah. So is this working?
- [64:05]
C
Is that.
- [64:05]
A
Yeah.
- [64:05]
F
Okay. Yes, the. So I guess let me start with sort of a flippant answer and then go to the series. So there's a sense in which, if I think about adaptation resilience at the small scale level, at the household level, at the farmer level, if I said, well, if we just have enough growth and people have income, then people will figure out what they need to do on their own. And of course, the problem is we don't have time to do this through growth and income. So we have to think about how, how do we get resources down to the individual level, to the lower level and use the local knowledge that's there about what the right things are to what the right investments are that will lead to adaptation resilience. And I think that's challenging because it takes a certain amount of trust of the investors to say that we're, we don't know what should be done with this money. We're just going to give, we're going to give loans, we're going to give money to local farmers and we're going to let them figure out what's the best way to spend that. And I think that's in a sense, somehow where we need to get to now. I think if I think about this from a DFI perspective, there's a caution about maladaptation, there's a caution about being blamed for things that happen. And so I think we have a tendency to want to stay in control of what people are doing with the money. But this is a case where the local people know more than we do and we have to kind of rely on that.
- [65:49]
C
Thanks very much, Chris. I've got one question for Vera and then one question for Melinda. I'm upping to a bit more macro now, but micro is usually the right place to start. The amount of investment that's necessary is very large and we discuss that and we haven't got time to run through the numbers again. But you made a very strong point about fiscal space and, and about new resources. And fiscal space is about the ability to spend and the ability to borrow. But You've done so much of that. You've been one of the world's leaders in how we tackle debt, how we create that fiscal space. And that's going to be key to achieving the macro levels of investment we need. And I wonder if you'd like to develop that a bit further.
- [66:51]
A
No, thank you. I'm going to make a publicity for myself a little bit. But doing exactly what you said, I think. So I started this thing called the liquidity and sustainability facility. And you said two things, Chris, that were very important, which is sort of where is the bankability? There's no bankable project. And when you go backwards into work with that question, really it's about the utility. And remember you said, well, now that we no longer do Eskom and we're just going out there and sourcing, we're finding projects all of a sudden because the model is a model that needs a bankable off take or somebody that can pay for the investment that you make. And what we've started to do, which is quite interesting I think think is, and it brings two things that actually Chris talked about, and he also talked about it a little bit, is regulation. There's a lot of conversation around domestic resource mobilization. Now let me tell you something. A lot of the African pension funds, a lot of the developing world pension funds, we actually buy our country bonds. When Cameroon goes out to the market and issues a bond, the Cameroonian commercial banks buy some part of that bond. When Indonesia does that, Indonesian banks buy some part of that bond. However, the Basel regulation and the prudential system says those bonds are not investment grade, they are not good quality savings, they're bad, we can't touch them. So the countries are forced to just hold that money. And this is dead money in the system. In Africa, it's about $70 billion just sitting there. So in the liquidity and sustainability facility that we have created, we are saying we get a facility that buys back those resources, we give the banks cash. All of a sudden those banks have investable resources, local currency, investable resources that they can now take and go and reinvest. However, for us to be able to buy back that, because the world has said that it's not investable, we need a guarantee to rapid. And that makes us slightly more confident to hold those resources for a while while you use resources to invest, because it's the multiplier effect that we're talking about. And so really we have two problems. Either we reduce a little bit the Basel recommendation, which we're working a lot in the report. And this is the macro level. The other problem with this macro level regulation is that the credit rating agencies, once they've rated, no developing country is rated investment grade or most of us. And so essentially the cost of capital is very high. So even when we go to the small woman in the farm, she's borrowing at 25%. It's a killer. There's no way she can grow because she's borrowing at 25%, because the sovereign, the government is borrowing at 11 or 12. Now if you come in and you want to have a little bit of return, you in 15, the bank wants to have a little bit of return, you're 20. There is nobody in Europe today that can borrow at 20% and survive. But in every developing country in the world, women are borrowing at 20%. And so it's, it's even when we try to give them cooking stoves, which is clean cooking stoves, we're, we're asking them to borrow for clean and for green on such a high cost of borrowing that is, is impossible. So it's not just that we're missing the amount of money we need, but even for the little that we have, the cost is so high and we must start by reducing the cost at the sovereign side. And I'm glad you're agreeing, but this is the problem that we're both facing. Indonesia or Cameroon or any other developing country out there. I think that's the macro problem. And the big macro solution to that is exactly what we talked about is let's use the LISA consult concessional money that is available very well. And so you use it for guarantees. You use it to enhance what they call credit enhancement. You use it to take our resources that are not investment grade. And with $1 of MDB money and BII money, we can credit enhance the project. And then all of a sudden it becomes cheaper to go to the micro, which is really where we need to end up.
- [71:00]
C
Thank you very much, Vi. Now, Melinda, I was chief economist at the EBRD then of the World Bank. And so I was sitting on the other side looking at the shareholders. And rightly or wrongly, I think probably rightly, the British shareholding was really quite influential in those institutions. It's been in them a long time. It's involved in the foundation for some time, at least we subscribed to the 0.7%. There's all the expertise that you saw developed over a very long period at dfid. There was a lot of respect for that. So how best to use the UK's position as a shareholder to take through and promote and foster, obviously in collaboration with all sorts of other people and countries, how to use, use that to get the expansion of the MDB lending that you articulated so clearly, including, I hope, UK's presidency of the G20 in 2027.
- [72:08]
D
So when you're sort of a shareholder, just sort of, to picture it, you're sort of sitting there, your executive director is sitting there amongst a group of shareholders and sort of doing a bunch of things, you're commenting on individual projects and programs. So do we think this program, this lending program to Indonesia is right? Have we done all the checks and balances on esg? And then you're also working behind the scenes with Ajay Banga, with your colleagues from other G7 countries, the major shareholders, to talk about what's the future of this bank, what do we really think we want to achieve in terms of the priority reforms and how do we get behind them? Then you're also having a cheeky glass of wine with Ajay Banker and he's telling you his problems, you're kind of helping him navigate and so on. I mean, I think that the principles, the key principle, and you've helped greatly, both of you, Nick and Vera, with this, is being absolutely clear about the reforms you want to see in the order that you want to see them and why you think they are vulnerable, viable. So, Nick, as you know, the capital adequacy framework stretch is not a new concept. However, it took many years and many intelligent professionals to really articulate what that could look like and how far it could stretch and all the things within that that we needed to consider. The equity to loan ratio, the level of risk appetite, the culture of the bank, the lending and so forth, AAA rating, what that would mean. But pushing and insisting on that precision and the analytical basis underpinning reform and then building the constituency around it is absolutely key. And as we talked about guarantees, for what it is worth, it's also the principle of being very nimble. Right. So one of the issues might be if we were to approach the conversation of a capital increase from the World bank. It's very hard to do that now when you have the US with the position that it has about its stake in multilateralism generally, do you take a step back and say, well, we know a capital increase is important, but we're just going to put it on ice, or do you really try and innovate there and think, actually, can we use guarantees, can we do selective capital increases? Can we do some kind of hybrid manoeuvre whereby we can put ourselves capital into a specific pot. You always have to think around the problem to achieve the same effect. But there's no substitute for careful quantitative analysis about what the impacts would be of doing those things. And that's how you then convince the other shareholders to come along with you.
- [74:49]
C
Thanks very much Linda, but pleased you are where you are. But there's a huge amount of work to do clearly. Now I've let it go on a bit, that's my fault. But I want to have at least one round of three questions and if you keep the question short we might be able to have some more. So could you identify yourself? You'd like to ask a question? Is a gentleman just next to you there?
- [75:17]
E
Hello, sorry, my name is Ola, I do an MSc in Environmental Economics at LSE. I wanted to ask a question to Dr. Sudana about the removal of subsidies in Indonesia. Nigeria had a similar removal of subsidies and it had a lot of negative impact on inflation and quality of life and everything. So how would you possibly mitigate those possible consequences on an already low income country?
- [75:47]
C
Thank you, thank you very much. Looking for other questions. We strive for gender balance at the LSE when we have questions, but I'll let you go.
- [75:58]
E
Sorry, My name is Ishan and I am a MPA 23 graduate and currently working for a leading MDB. So I think it's fair to say that that IMF and MDB financing is not enough for the challenge we have at hand. So I would like to hear the panel's view on when can we see SOPs like standard processes on first calculating climate, nature, risk and also embedding this as a key KPI in global finance because that is where majority of financing was going to come.
- [76:33]
C
Thank you. Is lady just here in the middle. Middle of this and then I'm going to take one question online. Is there somebody who's going to give me one question?
- [76:49]
D
Yes.
- [76:49]
G
So from Vietnam. So it's one of the. My name is Ngo Anh Ang. So it's one of the top five countries in the world to be affected by climate change and I'm studying a Master of Law in Energy and Climate change in the uk. So my question is I have seen a lot of support from the UK government for a best way for my countries in financial perspective. However, I also see that a lot of banks like Barclay or HSBC has been withdrawing from the net zero buying alliance and it has been seen the same pattern with of course with a lot of other banks in international bank as well in the world. So how do you consider this maybe inconsistent between the political will of the UK government and the private sectors, especially the private sector from the UK in in this trend.
- [77:41]
C
Thank you very much. And one question from online is there?
- [77:45]
D
Yep. So a question online is coming from Simon Togu. Sorry if I'm not pronouncing that correctly. And it's about the question that Simon asked is will Western finance be relevant in say 20 or 30 years time as China will have developed supply chains and have saturated its home market, it will then simply trade raw materials from poor countries for the manufactured goods necessary for the green transition in those countries. So where does the west and its finance fit into these development trajectory?
- [78:18]
C
Very good. There's four big questions actually. So first one was for you, Dana.
- [78:26]
E
Okay, I didn't.
- [78:27]
C
On subsidies. Yeah.
- [78:29]
E
So what was the question.
- [78:32]
C
The gentleman at the back was asking about the challenge of removing subsidies. Subsidies generally waste a lot of money and are often effective and well, you know the story. But how'd you get rid of them?
- [78:47]
E
Okay, thank you so much. That's very relevant to my country actually we were very successful in removing very aggressive fuel subsidiaries especially we started in 2005 during Susilopambang Yujo. That's where the time when. The time when Andrew Steele, Sir Andrew Steele was a country territory of the World Bank. So the way how we did it was Christian Udion at that time. Tell us that. Okay, I'm willing to take the hard way doing the removing fuel subsidy, but I have to make sure that the poor people who affected by this fuel subsidy removal is going to get compensated. That's where we started introducing the so called cash transfer without any conditionality. And he asked us for three months, four months to collect data on name and address of the people affected by that one. That was number one. So we transfer that requisite 2 subsidy into cash and then transfer it to the household. And we also need to have this political backup from the parliament and also from the civil society who they are sometimes less receptive to this kind of ideas because they thought that actually fuel subsidies are very poor. But we saw them through our data that actually is very highly regressive. It's actually benefiting those who own two or three cars, who own refrigerator and things like that. So educating people are important and also compensating people who got hit by this removal of subsidies, also critically important. I think that's what we need to do the same thing with this climate adaptation issues. How important is Doing it right now, comparatively we are not acting anything in the future. But we have to have very concrete credible evidence so that we can communicate to the public. So we get attraction within the society and also within the government.
- [80:40]
C
Very good.
- [80:41]
E
Thank you, please.
- [80:41]
C
Thank you very much. Your question on risk, I didn't actually get it perfectly. Could you do a one sentence version?
- [80:54]
A
We're going through an IMF World bank review of the debt sustainability analysis and we're hoping that we will begin to see included in the debt sustainability analysis of both low income and middle income countries some of that. One of the things that is happening with the G20 countries is the interoperability and measurement of, you know, what is it that you actually call carbon emissions and how you measure it. So I think when you bring those two things together, the work on the G20 and then more importantly some numbers on what it is going to cost to do that new road that is climate resilient, climate accepted. But there is a lot of work going on. So hopefully I think the IMF, if the G20 members agree, the IMF should start doing it this year.
- [81:39]
C
Thank you. Thank you very much. Anybody like to take the question from Columbia colleague from Vietnam about the withdrawal of western banks.
- [81:52]
D
Suddenly? Phil, I should have let that one go to is an excellent question. So banks and companies have a position on climate for a range of profitability, politics, shareholder value in terms of how shareholders perceive the value where they think the profits are going to be in the future. And you're absolutely right that many have reassessed in view of geopolitics of climate change internationally and how they see the politics, the sort of forcing mechanism behind climate commitments taking hold in countries and changing the economic policy frameworks for fiscal frameworks for their investment. So what's the sort of answer to that? I mean the problem doesn't change right on this, which is that you still need to pull capital to where it needs to be in order to tackle the problem. But what you need to do is just work a lot harder. The countries need to work a lot harder and investors like BII need to work a lot harder. And development actors like the UK and political actors like the UK need to work a lot harder with that country to reinforce the attractiveness of the market to that sort of investment. Now my sense is, for what it's worth over the years, private investment, HSBC notwithstanding, whoever it might be, tend to sort of go in waves on this agenda. What matters is, is the long term signals that the government, we and big investors such as BII the banks and others put in place and the environment that that creates to maximise the use of those funds. We can't change what the banks do, but we can change the environment within the, within which the banks make their decisions about what is profit maximizing, what's a good long term investment.
- [83:51]
C
Thank you.
- [83:52]
F
Can I just make one, one quick comment about that as well? So someone said to me not long ago we used to worry about greenwashing and now we worry about the opposite. So people used to not do things they said they were doing, now they're doing things they said they're not doing. And so I think actually what they say matters and the voice they have matters. But I think when we look at what they're actually doing, the movement will be less than what the movement of what they're saying. I think it is a matter of kind of playing to the politics of the moment. These are banks that operate in multiple places. You know, Barclays is saying, look, the US is telling us to do one thing and Europe is telling us you can't do that, you have to do something completely different. And they're trying to figure out how they operate in that environment. So I think we should look at what they're doing rather than what they're saying.
- [84:45]
C
The economists called that green hushing, didn't they? Let me take the question on China and then let me take the question on China and then we'll wrap up. China's already investing and financing in developing countries as a share of the world economy at a bigger rate than the United States did in the Marshall Plan at the end of the Second World War. And there's a very good paper by one of our colleagues, Matthias Larsen, who's one of the co authors in the Grantham Research Institute series, setting that out. The numbers are already very big, but it seems to me that the idea that somehow everybody else is irrelevant because China is expanding is not right. There are lots of other sources of finance we've been discussing. The magnitude of the challenge is so large that we're going to need everybody involved. If one country, for example, the United States steps back, steps back in investment, it steps back in trade, it steps back in finance, it steps back in security, then there's room for a other people to step forward. And our friends in China have worked that out. It's pretty obvious, but they've worked it out. What's very important in those circumstances is that other countries step forward too. And we've heard ways of stepping forward, including through the MDBs. I think you're going to see the two giants, most important countries in the world, China and India, step forward in different ways in different places. It's a huge opportunity for Europe to step forward. There's a huge opportunity for Africa to lay out what it needs and what it wants and create the conditions for investment. So it collaborates with China and Europe and so on, and the MDBs. So we're seeing a reforming, a restructuring of international finance, geopolitics, economics. But that doesn't seem to me to make anybody irrelevant. It actually puts a much greater emphasis on collaboration and finding new ways to collaborate in a changing geopolitics. So we should welcome what China is doing, but we should also work together through the various international institutions. We as a world, including Europe, we're we set to be a big part of that now. I'm going to have to close it now, but I did want to close it by recognizing that, to coin a phrase, there's a spirit on the platform that says yes, we can, and even those of you amongst you must remember Barack Obama's election program, but yes, we can. There's so much that we can do, but you have to take your jacket off. It's hard work, you have to get involved in the details. But the pressure of the shortage of finance, I think has increased the degree of creativity and it has to, for all the reasons that we've set out here. It means multipliers, Multipliers, multipliers. And we try to describe right from the micro level up to the level of regulation and domestic resource mobilization and so on. And that's why it's so important to have, as it were, these issues discussed and laid out at the London School of Economics. Because the biggest barriers to all this, because of the advance in technology, the biggest barriers are now economy, society and politics. That's what we believe we study here and understand. That's hard, difficult stuff. It can be technical, it, it can involve big issues of judgment, understanding of history and so on. But that's where we have to work and we can see, I hope you can see, that whilst we've got so much to learn, we actually know enough to start in a very purposive way. Thank you all very much for coming. Thank you.
- [89:02]
A
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