Financing The Transition: How Can MDBs' Reform To Become Engines of Climate Finance?

[Music] thank you so much I appreciate the kind welcome and H as promised we will be providing food for thought with this session H we thank you for joining us uh and having such a distinguished group to talk about multilateral institutions in a transformative age now when the Great Breton Woods institutions were forged envisioned developed and implemented um in the in the wake of the last Great War climate change was not at the top of anybody's mind back then however as we're in this new century as we think about the challenges that come ahead in the next 50 years the next 100 years uh questions are being asked are these multilateral institutions that served the world economy well during that era of the past are they fit for purpose for the new era and there were failings as well there were shortcomings even in those times can they be addressed could we perhaps imagine uh a new set of Arrangements how should we fix um the world of global international finance seen through the lens of these multilateral institutions uh in a way that is consistent with the ambition of tackling climate change something we'll discuss at cop uh in the in the coming days uh and Beyond that's the big question on the table and I'm delighted we have three big brains uh to join us to help us think through this I'll start with um one immediately to my left Professor Dan Esty Dan welcome you spent a lifetime thinking about and writing about uh and indeed as a practitioner leading efforts in uh American government and now at the WTO and thinking about some of these topics uh can you frame this for us with your professorial hat on uh sure BJ thank you and thank you all for uh staying with us for this conversation I think one of the themes that's really emerged over the course of this entire week and certainly over the course of the day is how important Crea finance and expanded and broadened Finance is to the response to the climate change challenge in particular but really to the commitment to a sustainable future more broadly and I think in that regard it's quite clear that there's going to need to be a blend of private capital and Public Finance and I think one of the other themes that's emerged is the need to really be creative in how we use some of the existing institutions and their financial capacity and I'm thinking in that regard in particular about the World Bank and the IMF and I do believe we see new leadership over the last couple of years and in fact in the World Bank case over the last year that is really committed to this transformation process to really finding ways to drive the capital that's needed across particularly the developing world uh in terms of the buildout of the clean energy foundations for the economy of the future and I think that what is also emerged very clearly and I say this to someone who spent the last couple of years at the World Trade Organization thatone money is not enough uh we need as well bear in mind you're talking to a finance audience Dan are you sure that's the right uh line to lead with here I I if I lead people with only one message let it be that there is a need to move on in parallel with a structure of trade uh an integrated trade system not one that's breaking apart and fracturing but a a trade system that's pulling together and delivering Global public goods that's the academic term uh climate change response would be a simpler way to put it and in that regard we know that there is a a value to the money that can be generated from public and private sources from a retooled and repurposed World Bank and IMF IMF but we also need somebody to actually move the Technologies the projects the infrastructure that is going to be that clean energy foundation for the economy of the 21st century going forward but if we were to take a sober look at the way the world is uh evolving at the moment uh is it fair to say that we're going in the other direction that we're seeing a world of barriers up of industrial policy of protectionism of broken or at least disrupted Supply chains uh is uh is that and it was happening before the pandemic as well one must note some of these Trends uh what do we do about that especially if what you say is right that we need that trade and interconnection to achieve some of the goals of climate and sustainability uh how do you tackle that well I think one of the things we have as a resource in this regard is a very Dynamic leader of the World Trade Organization in the person of En goio konju and I think Dr and GOI as she likes to be called has got a clear focus on the need to hold the system together but recognizing that to do that you need to reform it uh the system of the past has not uh been working for some time there's been a drift away from the trade system as a central feature of global governance there's been a backlash in many countries against globalization so I think we need a new fit forp purpose WTO for the future and that process is underway and I think Dr AG GOI with the 164 members of this member-driven organization uh are thinking hard about what that looks like and of course uh while we're here this week uh in in Abu Dhabi and many of us are going as you've already said to Dubai even later today for the cop and Dr Enos is going to be there as well right she will be and and I think that represents a couple critical things number one uh we are going to have for the first time ever in the three decades of these cop Gatherings these climate Summits a trade day and I think that reflects the fact that the trade system represents a point of real leverage for delivering climate change action again these goods and services Technologies and infrastructure across the world at speed and scale but it also represents that the trade system has its own pace of conversations and the next big program on that trade calendar uh in the series of ministerial conferences is the 13th such conference that will be right here in Abu Dhabi in February so I think Dr Ang GOI is in Dubai to lay the foundation uh demonstrate to the world community that trade is part of the response to climate change to the need for a sustainable future but also hoping to build momentum for the Gathering of trade ministers that will be here in just two and a half months and really needing to advance the repurposing and restructuring of the trade system exactly as you suggest to be fit for purpose going forward that's great so that's that's a good vignette a good uh example of how multilateral institutions are trying to adapt to this new age um uh GRE let's come to you you're you're a man from the private sector World in finance um uh you you heard Dan say money is not enough um do you agree do you can't we solve this problem with adequate I mean the world is a wash in trillions especially in the private sector uh with the trillions in capital we had the State Street on on the stage a little bit earlier today black rock is around at cop surely if we change the incentives facing the private sector that will lead to that flow of trillions and solve the problem as Adam Smith and the Invisible Hand would would have it happen and surely Goldman Sachs as well surely surely uh well let me first add my thanks and let me uh thank the audience I know you all heard the call for lunch uh so you stayed with us so thank you for that um I want to First tackle uh Jay the the question of whether these organizations have been fit for purpose and I think the clear and maybe obvious answer is no uh and the reason uh is that the world has never confronted a challenge you know uh that requires this level of coordination uh and I think the early returns probably suggest uh that we're not on Pace uh and if anything you know some uh observations could be made that we're moving actually in the opposite direction in some parts of the solution Matrix uh so Dan uh it makes the point that money is not enough uh it would be luxury if it were U I think today it's almost not even a question that we've arrived at yet uh part of the reason is that the Quantum of capital is uh almost UNS seriously small uh in terms of uh closing the Gap uh point one I number two we all know and have seen uh that the cost of capital has uh backed up you know pretty quickly uh and so even if it were a solution yesterday surely it isn't today I think three to the extent that money was even a solution we don't even know that we have the right methodologies yet and certainly not uh the type that Dan describes in terms of global coordination it has many facets uh when I think about these uh these multilateral organizations I think the real asset and what we're confronted with uh VJ is to understand what is the asset truly uh today uh with respect to this kind of coordinated outcome that we need and I think the asset really looks as follows um neutrality uh or at least perceived neutrality uh transparency or at least perceived neut transparency deep you know uh tentacles into lots of places of need uh you know opportunity to weigh in on policy or at least coordinate uh that and so on I could go on uh these are vital aspects because what we need is a uh a a credible and transparent super nucleus if you will uh of information and context research uh and also points of measurement standards uh those are vital components these These are really interesting we're gonna talk in the next session that I'll have on the stage about carbon credits and carbon markets which is an area that could benefit from more transparency and data CL Clarity um but you're talking at a meta level a higher level well I was going down I think where I was going uh I think the asset in in time will not be seen uh to be uh the most credible uh place for which um you know large scale dispersement will occur um I think the tools traditionally have been Aid and you know loan capital and first loss Capital these aren't the things uh that will be required you know frankly uh with respect to the ultimate because they're not scalable or because of the transparency question both of them but especially that they're not scalable that money U doesn't res it it ends up residing there that's not where it uh is initiated that's not where it's earned or returned right uh and so in order for it to be that super nucleus you know for me um those assets will have to be transformed to to represent the first layer of um really important uh components is you know in the sense that you know there aren't actually Global institutions that can really play those roles there are many Global institutions that can actually disperse capital and probably more effectively uh so I think we will learn that these organizations must evolve uh for uh for a new purpose uh requiring levels of in Innovation and the convening of talent frankly uh that's not traditionally pendent role that's an exciting uh you know opportunity uh and I think one that will um you know will happen by necessity and I think you've already begun to see you know the beginnings of that and I think I think we must just to finish on this point can you give a tantalizing example of where you see this beginning to happen one of the multilateral institutions that might be beginning to do some of the analytics or data or playing the newer role that you're talking about yeah well here's here happening already here's Here's a thought I think what we have learned you know in the recent past this Bridgetown you know uh initiative to the extent that becomes a consensus really challenges us to do uh the following and really to isolate uh the places where we could get step function Improvement one of the ways you can do that is really helping the developed world the developing world leap frog uh you know uh which I think we're not currently doing uh you know some of the hydrocarbon examples that have fueled you know A Century of industrial activity by helping them LeapFrog that and we've seen that in other uh large you know fixed investment you know type initiatives uh that would do wonders actually as many of these emerging company uh countries come up the development curve and hopefully we'll be using less carbon to industrialize there than uh their contemporaries did a century ago I think that's really important and you see that uh as an emerging consensus for where I think we need to go well great that that Leap Frog aspiration is is certainly Our Only Hope really if we look to the Future Shing let's come to you you are at the aib um which defies the argument that the uh development Banks can't innovate because your institution itself is an innovation right you're the newest of the big uh development Banks um although but you're an old your history is with the World Bank so you've got a foot in both worlds the old world and the new world uh can you tell us um what is your perspective on the idea of Reform of these institutions what uh was alluded to as the Bridgetown effort Mia Motley and others are arguing for fundamental transformation of these institutions um as a man on the inside what is the transformation that's possible and let's again look at things with our eyes wide open what are the limits of that transformation what's not possible given business models strict rules about maintaining credit triaa ratings and so on there are some mandates that are going to be hard to change perhaps so what do you think is feasible yeah um uh thanks um so maor just you said I mean aib is kind of the newest Bank uh to the to the MDB Club um it is right after the Paris alignment so we um kind of in between right um the the the the kind of the the old system and then the new system um from our end um because um we could get established with this new mindset so actually a number of the issues the current uh reform that being called um is is not really kind of um applying to us but in any cases um the bank is um very supportive about um talking about this this MDB reform and also to stand by to support that um like for example um some of the reform is um to create um a simplified and streamlined operational process you know to basically to reduce the transaction cost so aib um you know in terms of the governance we do not have this permanent residence um at the board um and also um the project cycle is quite small is is quite uh um short so it's just to say um you know that that's the the EAB is um it's is functioning a little kind of differently so a little more agile a little less bureaucratic try to move faster on projects this is the aspiration exactly but we do we do believe that it is you know the the topic itself comes to light in a in a very timely manner as you just you said um because a lot of peer MD have been established let's say in the 20th century and then we do have let's say Global challenges and evolving environment um you know the health issue climate issue and the public challenges um being faced in the 21st century so with this said so indeed there were um is quite valid and vital to discuss about it um and then to your point as well um so there are there are you know different mdbs were created within their respective mandate and then uh on one hand I think the peers realize the the need I mean welcome this discussion but on the other hand you know they established article of you know basically the article of Charters right and then there is established um uh business models they have to follow so in order to follow through that kind of the recommendations we really expect um the support from the shareholders to really um to hear or to see the the the our shareholders who are looking for the reforms are also ready for the reforms and to re to really stand or sit by with the mdbs in order for us to take the actions um yeah and so just just also to take uh to give one example in terms of the the the the areas of reform right um one of the I I would say resonate me with me significantly is the MDB should be worked better together as a system for the let's say transformation uh impact so I think this quite a valid point because we got feedback or sometimes the criticism that like mdbs are not only competing with the private sector on some cases and then they even compete among themselves within the group so it is really not you know the MDB should be doing and play their um their their value so what what is happening uh with this is um at the kind of the highest the MDB heal level um there is indeed deepened um communication dialogue uh within this group and then to discuss more let's say strategic issues including how to work together and then concretely if if colleagues are here would be attending the C 28 you know in the following two uh weeks yeah one concrete uh let's say proposal mdbs are putting forward on the table is you know that's support the country in a country L platform so basically that is to create um you know this environment or this vehicle so that the different mdbs could really align the Mandate with the country's focus and and priorities to work together so that is just you know one examples to sh that's a great example Dan you wanted to jump in on that I want to jump in because I think we we've identified another of the critical needs that I hope this panel puts forward and the audience takes up and addresses and that is the need for a more integrated approach that breaks down silos um we've already talked about The Silo between or among the development Banks and then you and I have been discussing as well this question of whether the finance and the trade dimensions are coming together uh there was discussion of the bridg toown agenda interestingly importantly the Bridgetown 2.0 agenda adds TR to the agenda of Reform so it's not just uh of the World Bank and IMF and the mdbs more broadly it is uh bringing in the idea that we do need this trade Dimension and then I think we want to make sure there's one more piece of the bridge that gets completed and that's the conversation between uh what's going on here on finance uh what is going on on the other side of uh the nation uh in Dubai on climate change because I think there is a worry that sometimes these uh separate conversations don't come come together and we have in fact in the worst of circumstances even the same governments saying one thing in a climate change context and something quite different when it comes to the finance or the trade that might support the action that they've committed to in climate change what do you think um Greg if I could turn to you on this um is there still a significant disconnect uh between uh finance and climate objectives what are you seeing from your perch on Wall Street um you know we had a wave of enthusiasm about ESG investing LED from Europe but but really more of a a global Trend that began now we see something of a backlash on ESG um and we see a green backlash generally we did a coverage story a few weeks ago about this just in the body politic in some areas um uh but on finance particularly how do you see the role of uh these two different sides of government sometimes or public institutions um markets can sometimes be brilant in connecting disperate things u in a hakan way finding the magic of finding solutions from the bottom up can this happen now or are we going to find a period of Divergence where public policy leads the way like the American policy of subsidies through the IRA law and markets um may not come up with the kind of bottomup solutions short of those sorts of incentives yeah what thank you for the the question I think this is an interesting problem type in the sense that both policy and reg atory prognoses as well as Capital Solutions are both barreling toward you know efforts and Frameworks and models uh but still in many ways you know in their uh infancy and how could they not be we've really only recently uh come to what I think is still an emerging consensus that this was very problematic um we could identify the cause and we have some feeling about its mitigates um that's really only in hand past handful of years but I would say v j that something um has um you know as young people would say something else has entered the chat which is the cost of inaction I think we Now understand um has gone up enormously I think there's something very anomalous uh to what we've seen with respect to climate disasters and the inevitable you know climate refugees and movement of populations I don't know if we had that we had that consensus you know five or six or seven years ago but we do today and so we start to think about the the arithmetic that we're all facing the cost of inaction you know cost significant Capital almost unimaginable uh is growing perhaps at a faster rate than the solutions presently are uh and I think I me I mentioned earlier the cost of capital um and and so I think the motivators for getting better coordinated uh as my fellow panelists have suggested those incentives have climbed dramatically and so the reason why that's important is because you will confront a cost of some type in financial terms the denominator the return on what investment um you know has changed radically uh and so I think we're no longer you know sort of faced between two options which is getting doing nothing or getting some inferior return or not we're sort of faced with you know getting some kind of return for the ability to continue to play the game at all right uh and that's a fundamentally different calculus and so I'm compelled and I think my um fellow um you know uh speaker and in for in fellow Bostonian Ronald Hanley uh was up here talking about the fact that uh you know the capital if assembled you know correctly and against the right incentives um has to rush in I think the next paradigm shift that we have to go away from uh and toward is away from compliance you know driven Solutions and toward a profit seeking motivation that really will uh Galvanize the private sector in a different way that you don't see today I think we're on our way there sh let me ask you to come in on this the uh there is a it' be wonderful to see these solution scaled especially given the cost of inaction you talked about Lord Stern's famous report of course outlined those very effectively some years ago it's now more much more widely accepted we're seeing losses bill multi-billion dollar losses multiple times a year U manifest themselves Insurance markets pullback in in for example and requiring back stops from public institutions that's where I come to you um if we're going to see this sort of bottomup uh private sector response how do we cross the line of uh what sometimes is called the bridge to bankability the scalability challenge um there may be winners and losers but it's not evenly dispersed and so we may not be able to see the the outcomes that would be optimal what role do institutions like yours play in that right I I think I quickly have two there two Reflections one is perhaps to to give a boost right to to give this kind of more um catalytic boost and what the mdbs perhaps can do is to really devise more instrument or product to Der risk this new type of the project uh what I mean by doing that is um like for example by providing this um project preparation type of uh resources and for example by for example uh working with a um other um kind of uh low cost or transal sorry concessional fings to really create the template um to um let's say to replicate the project and until it get to a critical m so that it could really be taken over by the market um and then add the higher risk so we can be more experimental to try lots of things it seems to mean we need lots of new not only Technologies but projects resilience efforts a lot of them may not make money in the first go until we figure it out and there maybe a role for institutions of Public Funding of that kind of risk and experimentation exactly um and as the second point I would say that um we I think our our financial system has very perfect very good um tools to assess the risk and opportunities of the let's say the traditional um kind of uh finance and and and and and risk and return but when it comes to this climate um including the biod biodiversity this kind of let's say externalities we may need to think about a better model or a financial model how to reflect that cost and you know the return from you know in action or if you do it today what is your longer term return I think if that could be reflected in our financial model it would play let say a very fundamental shift um in the way of doing business that's a very interesting point you wanted to jump in we just have one minute left so yeah um one of the things that I couldn't help but take away not only from our own conversation but some of the earlier ones was this quest for some structure of rules and regulations that allow the flow of Finance to have an incentive backing and a real push and motivation and I do think in that regard some of this is going to be done nationally but the WTO the World Trade Organization and the broader trade system represents another potential place to create that structure that framework and I think if it's not done consciously and thoughtfully it'll get done through disputes that will end up at the WTO and I just want to mention in addition to being at the WTO and helping Dr en GOI with her sustainability agenda I've continued to play a role with a series of academics around the world creating a framework that we think could help set the stage for this conversation about a remade trade system aiming to produce a sustainable future so for those who are interested it's the V framework for a sustainable trade system uh it's available at the remaking trade project.org website and it gives I think some conversation starters for the governments they're going to have to pick this up particularly here in ababi in February with the so-called mc13 ministerial Conference of the WTO great so not the last word on the subject but um a provocation and a set of really thoughtful interventions that I think we can take forward from here onward to cop in February for the uh the trade Gathering uh and back into our uh professional lives so please join me in thanking our our expert panel for their for their provocations and interventions thank you