Imagine a select group of the world’s largest financial institutions, public and private, coming together to place a missing keystone in the middle of the climate finance architecture – a Deal Team for the Planet. Drawing on the best talent from banks, MDBs, asset managers, DFIs, and insurers, this team would be relentlessly focused on structuring and closing the world’s most important climate finance investments. It would address perhaps the biggest open secret in climate finance – the dysfunctional relationship between public and private institutions at the level of actual transactions. A Deal Team – not a fund, but a commercial locomotive for getting things done – could be a simple way to accelerate the deployment of climate capital in the Global South.
After COP29, I wrote a short essay with Dan Firger laying out what a fit-for-purpose climate finance system might look like. We asked three questions: Who’s at the center of the story? Where does public money come from? How do we get private finance flowing in emerging markets? In this piece, I explore one of the specific ideas we floated: a Deal Team for the Planet that can rally public and private financial institutions (FIs) to close some of the world’s most important climate investment packages.
A misdiagnosed problem at the heart of climate finance
Almost every major climate transition project in the Global South requires both concessional and non-concessional capital and thus collaboration across public and private sector entities. But here’s the rub: these institutions usually don’t work well together; indeed, at the level of specific transactions, they sometimes don’t work together at all.
The grumbling goes in both directions. Private investors complain that DFIs and MBDs take far too long to process transactions compared to commercial timelines. They point to weak regulatory systems and pervasive macroeconomic and legal risks in many emerging markets. They note that viable projects are hard to find, and data is limited; bankable pipelines don’t exist, and individual projects are often too small. And even when the public sector tries to design derisking mechanisms, they do so without much input from commercial investors and can be ineffective.
Likewise, public FIs point out that private investors often seek simple subsidies, misunderstanding the limits of concessional finance and failing to appreciate the political mandates and limitations imposed on DFIs and MDBs by governments. Public institutions (often rightly) complain that private investors can’t distinguish between real and perceived country risks, preferring to opt out of unfamiliar geographies and sectors entirely. The result is anemic public leverage and private flows.
Perhaps the most under appreciated problem in climate finance today, this lack of collaboration across public and private finance must be solved alongside other priorities like MDB reform, project development capital, and innovation in instruments like guarantees and currency risk hedges. Otherwise, some of the world’s most important climate projects may wither on the vine.
Blended finance is only a partial solution
Blended finance vehicles have arisen partly to address this problem. They showcase what can be accomplished when public and private institutions seriously engage in working together on more than one deal at a time. But each vehicle is an artisanal creation that can take years to negotiate and set up precisely because commercial and impact incentives are tough to stitch together. And as bespoke vehicles, they are difficult to scale up 100x.
So what is a truly system-level solution to address the reticence of public and private to work together hand-in-glove on big deals? We need to fill in the missing investment banking function in climate finance: a commercial locomotive staffed by professional investors from both “sides of the aisle” whose sole mission is to drag across the finish line the most important climate finance deals of the decade. This Deal Team for the Planet would ask relatively little of participating FIs. And it could be designed to support, not compete with, other new climate finance initiatives in areas like blended finance, financial innovation, and country-level capacity building. So how would it work?
The Deal Team for the Planet would operate as a specialized intermediary (not a fund) focused on structuring and bringing to financial close strategically important or complex transactions to drive meaningful climate outcomes. As such, it would be a joint initiative of leading MDBs, DFIs, and private FIs from both the global north and south. These institutions would contribute to the design of the initiative and could provide funding and/or dedicate staff resources, potentially via secondment. While at root it would be an initiative serving in-country project proponents, it would be a tool at the service of capital providers.
Notably, the Deal Team for the Planet should not be understood as an NGO or philanthropic initiative, nor a private finance “club.” Starting with a relatively small team of senior investment professionals and other experts, the Deal Team for the Planet could be mandated to work on 5-7 of the most important, highest-impact regional climate investments, with its key KPI being public-private deals brought to financial close.
A Deal Team would do more
What could such a team get done? Although specific transactions should be selected by the founding FIs based on criteria like urgency, impact, and need, some illustrative ideas include:
Regional economic corridors. Transactions that drive private investment into enabling infrastructure for low-carbon, resilient global supply chains, including through potential engagement with strategic intergovernmental partnerships such as the Partnership for Global Infrastructure & Investment (PGI), which is developing projects across the Lobito Corridor in Zambia and Angola or the broader India-Middle East-Europe Economic Corridor.
- Regional grid interconnection projects. For example, the long-anticipated West African Clean Energy Corridor would enable the build-out of new renewable energy capacity for a region with tremendous projected growth in population and energy demand. But to date, coordination across public and private financial institutions has not yielded much progress.
Implementing one of the Just Energy Transition Partnerships (JETPs). The Indonesia JETP includes a high-level working group to support the mobilization of private capital. In November 2023, a comprehensive investment and policy plan (CIPP) was published. This is a critical moment to step up efforts to make the JETP vision a reality. More broadly, such “country platforms” for climate finance could use a deal engine alongside multi-stakeholder talk shops.
Building a green fertilizer supply hub for Africa. Africa’s projected population growth alone calls for reimagining food systems to ensure the continent can feed itself while decarbonizing food system inputs. A recently announced effort in Kenya, with plans to build a 300MW green ammonia and fertilizer facility powered by geothermal, could serve as the basis for a larger initiative.
- Industrial decarbonization via accelerated tech deployment in emerging markets. India will be home to the bulk of forecasted new steel production globally, and the question is whether it could be zero-carbon. The HYBRIT project, a fossil-free steel facility in Sweden, is already very close to commercial, but the timing is very tight for such technology to be defused to the Global South so that it can substitute for conventional, high-carbon facilities that will be built in the coming years. A focused effort to finance first-of-a-kind industrial technologies in the global south is needed.
Key design parameters and governance would need to be determined by participating FIs, but nailing down the following elements will be critical:
- Clients: The Deal Team could have a client fiduciary duty to the “sell side,” i.e., country governments and/or project developers and their equity sponsors.
- Services: The Deal Team could provide financial advice from project preparation to closing stages, especially financial structuring and transaction due diligence as well as financing and negotiations.
- Talent sourcing: The Deal Team could combine private and public sector professionals and capabilities. It would be led by a permanent core team recruited by the initiative and complemented by participating institutions’ secondments of qualified professionals.
- Revenue model: The Deal Team would initially be funded by participating institutions providing operating support and in-kind contributions (including secondments) and philanthropy/donor governments. Over time, there is the option to make the Deal Team self-sufficient by charging success fees.
- Balance sheet: The Deal Team should not be backed by a big new fund. But it should have access to financial resources to pay for some soft costs related to the transactions it supports. Optionally, the platform could be complemented by a facility aimed at financing the development stage of target transactions (subject to further discussion among donors and participants).
The Deal Team platform could be launched in 2025, potentially at the G20 Summit in South Africa or the COP30 climate summit in Brazil. A small group of first-mover institutions could get the ball rolling, demonstrating by their deal making that they are taking seriously the mandate and principles enshrined in last month’s Baku decisions.
It’s admittedly a simple idea, but then again addresses a simple gap – the lack of an investment banking function in the climate finance system drawing the threads together. Done right, it could become the keystone in the climate finance architecture.