10
FINANCING GREEN
TRANSFORMATIONS
Stephen Spratt
Introduction
Finance is not neutral: different forms influence the activities that they fund. Most
obviously, the return required on investment determines the minimum return that
must be generated, precluding many activities and encouraging others. Maturity
operates in a similar way; if money needs to be repaid over a short period, activities
that would come to fruition over longer time scales will not be financed.
Many forms of ‘green transformation’ are conceivable. Some focus on economic
structures, particularly energy, while the broadest envisage a full transformation
of economic, social and political systems. They may be local, national or global in
scope. For some, transformation is desirable to achieve a particular end-state. Others
argue that transformation is characterized by complexity and ultimate consequences
cannot be known.
Different green transformations are more compatible with some types of finance
than others, but not all forms of finance are equally abundant. Building on these
two facts, this chapter examines the relationship between the financial systems and
the types of transformation that might emerge.
While recognizing the emergence of different financing models, particularly in
large emerging economies such as China, the main focus is on the major financial
centres that have evolved in developed countries. There are three main reasons.
First, despite the ravages of the global financial crisis, these remain the most likely
sources of finance for achieving a global ‘green transformation’, as well as the main
risks to international financial stability. Second, financial sector policy advice for
developing countries has largely been drawn from practices in these centres. The
impact of reforms would therefore be expected to have implications far beyond
their national jurisdictions. Finally, we have a rich body of literature on the political
economy of these financial systems: understanding how they have been shaped is
a starting point for how they might be reformed.
DOI: 10.4324/9781315747378-10
FINANCING GREEN
TRANSFORMATIONS
Stephen Spratt
Introduction
Finance is not neutral: different forms influence the activities that they fund. Most
obviously, the return required on investment determines the minimum return that
must be generated, precluding many activities and encouraging others. Maturity
operates in a similar way; if money needs to be repaid over a short period, activities
that would come to fruition over longer time scales will not be financed.
Many forms of ‘green transformation’ are conceivable. Some focus on economic
structures, particularly energy, while the broadest envisage a full transformation
of economic, social and political systems. They may be local, national or global in
scope. For some, transformation is desirable to achieve a particular end-state. Others
argue that transformation is characterized by complexity and ultimate consequences
cannot be known.
Different green transformations are more compatible with some types of finance
than others, but not all forms of finance are equally abundant. Building on these
two facts, this chapter examines the relationship between the financial systems and
the types of transformation that might emerge.
While recognizing the emergence of different financing models, particularly in
large emerging economies such as China, the main focus is on the major financial
centres that have evolved in developed countries. There are three main reasons.
First, despite the ravages of the global financial crisis, these remain the most likely
sources of finance for achieving a global ‘green transformation’, as well as the main
risks to international financial stability. Second, financial sector policy advice for
developing countries has largely been drawn from practices in these centres. The
impact of reforms would therefore be expected to have implications far beyond
their national jurisdictions. Finally, we have a rich body of literature on the political
economy of these financial systems: understanding how they have been shaped is
a starting point for how they might be reformed.
DOI: 10.4324/9781315747378-10