Month: January 2019

Financing Green Transitions

Samir Saran

More than three years after the Paris Agreement was finalised at COP21, it is evident that the developing world is unlikely to receive even the modest amount of US$100 billion annually in climate finance by 2020. This is primarily a result of the collective failure of the developed world to meet their moral and real climate obligations that pre-date the Paris Agreement. This lack of finance for climate action is exacerbated by the fact that the international financial community—banks, asset managers, investors and capital markets—have failed to align their operations with the goals of the Paris Agreement. The involvement of international financial investors, both private and multilateral, in financing green transitions in developing countries has so far been feeble, sporadic and arbitrary. Unless these resources can be leveraged to cater to the development needs of emerging economies, there is a real possibility that the green transitions that we all seek will be incomplete and mostly underwritten by the world’s poorest citizens.

For the past two years, ORF and the MacArthur Foundation have attempted to create a new framework to ensure that the global financial community better responds to the imperatives of the Paris Agreement. Our research acknowledges that official aid and grants are insufficient to meet the burgeoning energy and infrastructure needs of emerging economies. There is no doubt that we require new financial instruments and pipelines to support sustainable development in much of the world. This publication, comprising of 11 policy essays on the subject of climate finance, discusses this objective through multiple lenses. It is a culmination of our efforts to work with a global network of experts and stakeholders to identify bottlenecks and provide new solutions to ensure that emerging economies can access finance to meet their green development goals.

Our series on financing green transitions has largely focused on India, and for good reason: It will be the first large country that must transition to a middle-income economy in a fossil fuel-constrained world. India is also constricted by the same political, regulatory and financial challenges that confront much of the developing world. Given the weak efforts of the developed world to assist the developing countries so far, India has had to chart a path largely through its own economic and financial arrangements. Therefore, an assessment of India’s capacity to now leverage international financial flows and its ability to undertake a low-carbon transition may well provide a reliable template for developing countries to emulate.

Through 11 essays, we explore three broad themes: the role of international investors and institutions; India’s own development policy choices and lessons therein for other developing countries; and the role of human capital in climate-resilient investment.

Our first set of essays analyses the behaviour and financial practises of international financial institutions, investors and credit rating organisations. In “An Incomplete Transformation”, Mihir Sharma argues that Multilateral Development Banks have failed to create bridges between private capital and clean energy/climate resilient infrastructure demands in developing countries. He calls on MDBs to adapt to developing world priorities, crowd-in private capital, and streamline operational activities in emerging economies. In “Financing Climate Resilience”, Vikrom Mathur and Aparna Roy highlight the bias of international investors towards investing mostly in mitigation efforts. Conventional wisdom in the private sector holds that the costs of adaptation and resilience should be borne by governments. Taking a different approach to the problem, Mathur and Roy offer solutions focused on commercial and business opportunities. In two pieces, “Rating Resilience” and “Ratings for Renewable Energy”, Aled Jones studies the limitations of current literature and practices relating to credit rating of infrastructure projects and renewable energy projects and proposes a more holistic framework of risk metrics for both renewable energy and climate resilient infrastructure. Finally, in “The Political Economy of Basel”, Mihir Sharma outlines how the Basel norms have been designed to respond to the interests of a select group of developed nations. He argues that by prioritising macroeconomic stability and implementing new liquidity restrictions, these actors have failed to consider adverse implications on cross-border flows, especially with regards to long-term green investments.

The next set of essays focuses on India’s domestic challenges, particularly in its infrastructure and urban development policy and its efforts to transition to a low-carbon economy. In “PPP model, regulatory oversight and private financing: Evolutionary trinity of India’s infrastructure”, Gautam Chikermane offers a comprehensive historical account of the political economy of India’s infrastructure policy, documenting the many failures that have plagued it. Given that a stable infrastructure policy will have significant implications for green investment choices, Chikermane’s study of India’s policy failures provides valuable lessons. In “Financing Urban Infrastructure for an Evolving India”, Pritika Hingorani, Sharmadha Srinivasan, and Harshita Agarwal examine the reasons for the lack of private-sector involvement in India’s climate-resilient urban infrastructure. They analyse the current regulatory regime for urban infrastructure in India and provide a set of solutions, advancing both public and private sector participation in the future. In “Moving from Growth to Development: Financing Green Investment in India”, Neha Kumar, Prashant Vaze and Sean Kidney explore new financial instruments that India can employ to finance its green infrastructure needs. They outline how India can more effectively scale its green bonds market, leverage international debt capital markets, and harness blended finance to achieve this objective. Finally, in “India and the World,” Aparajit Pandey and I outline three key structural barriers that threaten to undermine India’s rapidly growing green energy sector: the state of its distribution companies, underdeveloped financial markets and inflexible international credit and risk assessment practices. Offering case studies from India’s state and municipal level policies, we argue that India’s ability to succeed in its low-carbon transition will open new pathways for emerging economies around the world.

In our final set of essays, we examine the role of human capital in enabling greater green investment, focusing on leadership and gender. In “Pay for Sustainable Growth”, Charanjit Singh, analyses the executive pay of 31 of India’s top companies showing that by linking management compensation to short-term performance objective, companies are failing to integrate sustainability objectives into their long-term vision. The chapter proposes a restructuring of the private sector’s approach to executive compensation, focused on long-term sustainable economic growth. Lastly, in “Gender and Climate Finance,” Vidisha Mishra posits that even though women and marginalised groups are likely to be more exposed to climate change related risks, they are severely underrepresented in the investment and regulatory classes. Her essay then unpacks the opportunities and benefits of meaningfully building gender concerns into climate finance mechanisms.

Our contributors have attempted to explore the reasons behind the significant shortfall in private finance in relation to low-carbon investments. They have also collectively offered solutions, both domestic and international, with regards to the flow of finance for climate projects. The success of these solutions, however, will be predicated on some boundary conditions that developing economies and the international financial community must meet.

First, developing countries must reclaim the power grid. The large-scale subsidisation of power in the developing world has created significant distortions in energy use, pricing and policy. State-level reform in India suggests that splitting the electrical grid for agricultural and non-agricultural sectors, implementing a credible metering system and providing subsidies as direct benefits can have significant positive effects on the power sector. Without a viable grid, green investments are likely to remain unviable.

The second is to build capacity amongst international investors to understand risk and opportunity in developing states. There is generally a bias stemming from lack of knowledge (information) and capacity (human resources) to assess risks in emerging economies. This ultimately translates into an inability to understand the economic landscape of recipient countries. Further, as one of our authors has highlighted, there are few institutional attempts at gendering climate investments and finance. A lack of female representation in the investor community, especially from the developing world, invariably means that the concerns and voices of the most vulnerable are ignored as financial plans are scripted.

Third, developing countries must build innovative policy tools to leverage new financial instruments and mechanisms. Currently, regulations related to debt and equity markets restrict the flow of international capital into climate action projects. Emerging economies must co-opt their financial sector in the fight against climate change. Financial markets that allow for debt financing and locally issued green bonds for example create a diverse set of instruments that different types on investors can rely on. More ambitious measures can include the creation of a “green investment bank,” which allow the crowding in of private investment in green assets.

Finally, there is a new imperative to overhaul regulatory systems around the world, both in recipient and investing states. Vast pools of money are held by multiple categories of investors, such as pension funds and insurance companies. However, existing regulations limit the ability of fund managers to invest in climate related projects. Further, international credit rating agencies reassess the methodology for assessments of green projects in developing countries. And perhaps most importantly, there is an urgent need to review the current set of Basel Accords as well as the next iteration of Basel IV accords. The macro-prudential regulations were designed to create a more risk-free international banking system but have unintentionally stymied the ability of the financial sector to contribute to climate resilience. The banking community must acknowledge that planetary risk is the largest systemic challenge to financial stability and that mitigating such risk is the most prudential practice.

While these solutions are far from comprehensive, they address some of the most persistent structural barriers to supplying and accessing climate finance. ORF and the MacAuthur Foundation will continue to explore new ways and means to ensure that developing countries can access financing to pursue their low-carbon transitions. We will also continue to study India’s own financial, technological and governance solutions in the hope that these experiences can benefit other countries and communities. We hope that the insights presented in this book will inform academics, business leaders and policymakers in their efforts to better understand the importance of the global financial community finally signing the Paris Agreement.

To read the full book, click here.

Debating a world reorder

Samir Saran| Harsh V. Pant

Every year, the Raisina Dialogue convenes experts from a diverse cross-section of disciplines and professions to address the most challenging issues facing the global community. It is fair to say that for the past few years, the common sentiment is that we live in an age of “disruption,” given the upheavals that have characterized global politics over the last decade. As the dialogue prepares to convene once again in 2019, the world is evolving in response to these disruptions. Older systems of management are straining or already broken, but the new regimes, rules, and concepts that could replace them are still forming. This year, Raisina will take stock of the immediate consequences of these disruptions, and explore how these consequences inform our visions of the emerging world order.

The redrawing of our mental maps of the world is perhaps the most consequential development. The tensions and instability emanating from North America and Europe have reinforced the fragility of the Atlantic system: that it won’t be able to sustain its role as the lynchpin of the international order.

To read more, click here.

Raisina Dialogue 2019: Curator’s Note

Samir Saran

Each successive year in the last decade has brought with it disruptions implicating global politics, economics and societies. At the Raisina Dialogue last year, we discussed how best to manage such disruptive transitions. This year, we believe that it is time to look ahead and search for new solutions and frameworks to manage the world. A “World Reorder” is our theme for Raisina 2019—and bold as it maybe, we have little doubt that the moment to reflect on this is already upon us.

Perhaps the most important driver of change is the certainty that 2019 will herald the arrival of truly global politics. The post-war order contributed immensely to the progress and security of nations; yet its ideas, frameworks and institutions are no longer sufficient for a new world.

The small community of nations that designed and sustained it must give way to a more diverse constellation of actors. New powers from the East are only one set of stakeholders—increasingly, global governance must allow for distribution of authority and agency to a more diffused networks of actors, from cities and citizens to corporations and civil society organisations. How we do this will be the key question of our time.

Consequently, we have chosen five themes that are defining a new world order. Perhaps the most consequential of these developments is the emergence of new strategic geographies that are transcending the old divides of East, West, North and South. Second, we analyse the discontent with today’s globalisation paradigms—and how new trade and technology tensions are threatening the future of connectivity and commerce. Third, we explore how technology is compelling us to search for a new contract between the individual, business and the state. Fourth, we ask what ethics will define the development and deployment of new technologies and how they will affect individuals and our societies. Finally, we emphasise the role of leadership—both individual and institutional—in managing the complexities of today’s world.

These are the big ideas that have influenced the design of the Raisina Dialogue 2019. Over the next three days, we have curated over 40 sets of interactions with a global community of leaders and experts in an attempt to paint a picture of a new world order that is rapidly emerging.

A prominent feature of this year’s conversation at Raisina is Europe or more broadly, Eurasia. This supercontinent is without doubt the most dynamic and unpredictable region in the world, one that continues to surprise itself and others around it. Once considered a benchmark for democracy and collective security, the EU is today increasingly roiled by the politics and economics of populism. Equally significant is that the geographical construct of the larger European continent is dissipating. New flows of finance, labour and information are merging Asia and Europe into a single Eurasian supercontinent. The question for the EU and other European actors, therefore, is whether they can act upon these momentous changes or be subsumed by them.

The waters that link this region are undergoing a churn as well. Strategic and economic drivers have brought about seminal changes in the Arctic and the Indo-Pacific.

As climate change transforms the geography of the Arctic, its waters will merge the politics of the Pacific and the Atlantic Ocean, even as the regions’ incumbent powers scramble to create new arrangements. The Indo-Pacific, meanwhile, is already fast becoming a domain for great power competition. Yet, with over 60 percent of the world’s populations residing astride these waters, its potential for scripting new paradigms for globalisation and development is unparalleled. This begs the question, then, of whether these new constructs merely allow us to visualise and manage tensions in the region, or whether they can emerge as a new conduit for development and stability.

The emergence of these new geographies is no coincidence. They are symptoms of a new normal in global politics—the eastward tilt in the concentration of economic wealth and military might. Two prominent questions arise from this trend. For one, what does this mean for the West? Can the liberal international order remain viable even as Western values, norms and influence steadily decline in international affairs? Second, what is the future of governance in Asia? The rise of new powers and interests is necessitating the ideation of new norms and institutions; however, there is little consensus on how to go about this process as old tensions eclipse the potential for cooperation.

The broader shift in economic power will certainly not be free of friction. Indeed, it has already given rise to tensions amongst the great powers of the West and the East.

Both the US and China are exerting their influence upon the rules of trade and commerce—and technology is the flashpoint that may inject a new urgency and ferocity to this contest. This dispute is only one facet of the broader dissatisfaction buffeting the global economic order. The rise of non-market economies and the domestic compulsions of populism and nativist economics are threatening the very foundations of free markets and free trade. How will the economic order that has enabled much prosperity over the past seven decades adapt? More consequentially, what happens if it cannot?

Even as the very foundations of the global order stand on shaky ground, the world is still attempting to address the imperatives of sustainable development. Emerging economies are struggling to access and raise sufficient finance to fuel their sustainable development pathways, while trillions of dollars remain locked up in Western pension funds and insurance schemes. This hints at a deeper issue: that 20th-century development paradigms continue to privilege a small set of actors and reflect their biases, preventing flows of technology and finance where they are most needed. Indeed, we must continue to ask how the global development agenda can be made more diverse by accommodating new voices. Engendering conversations on globalisation and development is certainly one solution; and it must form part of the template that includes underrepresented communities from around the world.

It is time that voices from the dynamic African continent contribute to the deliberations on the future of growth and development; and Latin American perspectives add a new dimension to the voice of America.

For many years, the world remained optimistic that new technologies would provide a voice to these communities and create new pathways for progress. Events in 2018 have compelled us to revisit this consensus. Balancing the imperatives of economic growth, national security and privacy seems harder than ever before. Democracies, it appears, are hard-pressed to achieve this, given that open societies are most vulnerable to manipulation and influence in their political processes. Worryingly, however, despite their outsized influence in our lives, global technology platforms have proven immune to calls for accountability and reform. This year, therefore, the Raisina Dialogue will ask how powerful technology companies can be made more accountable to the constituencies that drive their growth and profit. Or else must we rethink regulation that curtails their influence and reach?

There is, however, little doubt that technology will continue to transform our societies. The fourth industrial revolution will spur new breakthrough innovations and progress, even as it makes redundant extant arrangements for social mobility and economic growth. It will also compel us to reimagine the value of human capital. Our education, healthcare and labour frameworks must shed their 20th-century formats and reflect the realities of today’s knowledge-based information economy. Further, societies will have to grapple with creating ethical frameworks for new technologies as they increasingly become essential to our politics, economics and military postures. In today’s polarised times, these tasks will not be easy.

This year at Raisina, we also explore an often-ignored aspect of governance; one that will be increasingly relevant in today’s complex world: leadership.

In a world buffeted by multiple headwinds, it appears that we are experiencing a dearth of progressive leadership. How can individuals and institutions rise above the political divides that are inhibiting a new consensus?

Finally, we explore the role of India on the global high table. The opening lines of the Mahabharat, one of India’s oldest epics, boldly states that knowledge that eludes its pages may not be found elsewhere. It is fair to aver that India shares the same relationship with the world. Its billion-plus population is an embodiment of all that is right with the world and all that needs resolution. The challenges that it confronts are those that constrain all of us today. It is inexorably destined to be the steward of the liberal order with which it has had significant differences in the past. It is still emerging even as it leads, it raises hopes even as it disappoints. Indeed, India is a “boundary” nation. It is a living experiment where science and religion and identities and ideas intermingle to script a unique narrative of progress.

It is therefore an ideal location to dissect the most important issues that engage us all. It is on these boundaries that durable pathways for a world reorder will be discovered. This year, we have convened over 40 conversations to assess, analyse and argue these emerging realities. With 1,500 participants including 600 delegates and speakers from over 92 countries converging in New Delhi, there will be ample diversity and plurality of opinion. And our concerted efforts towards achieving gender parity have ensured that women account for over 40 percent of our delegates this year.

We hope that the Raisina Dialogue can be an incubator that generates new ideas for a shared planet and our common future; provide a space where contesting ideas can flow freely; and a platform where we may just tease out an elusive consensus. As always, we look forward to hosting you here in New Delhi.

रायसीना डायलॉग में आपका तहेदिल से स्वागत है!

Samir Saran

रायसीना डायलॉग में ORF प्रेसिडेंट समीर सरन का स्वागत भाषण।

रायसीना डायलॉग, ORF, Raisina 2019, Raisina Dialogue, समीर सरन

नार्वे की प्रधानमंत्री महामहिम, सुश्री एर्ना सोलबर्ग;

भारत के माननीय प्रधानमंत्री, श्री नरेन्द्र मोदी जी;

माननीय विदेश मंत्री श्रीमती सुषमा स्वराज जी;

मंत्रिगणों, एडमिरल्स, जनरल्स और दुनिया भर से आए प्रतिष्ठित नेतागणों; तथा हमारे प्रतिनिधियों और प्रतिभागियों

रायसीना डायलॉग के चौथे संस्करण में आपका स्वागत है।

हमारे ऑनलाइन ऑडीअन्स का भी खासतौर पर अभिनंदन — मुझे बताया गया है कि पिछले साल उनकी संख्या 3 मिलियन से ज्यादा थी।

हमें उम्मीद है कि इस साल यह संख्या और भी ज्यादा होगी, क्योंकि इस बार हम रायसीना को मराठी और हिंदी में ट्वीट और कवर करेंगे तथा प्रतिदिन हिंदी में ‘बेस्ट आफ रायसीना’ वीडियो तैयार करेंगे।

मैं 92 देशों से आए 600 प्रतिनिधियों और वक्ताओं का हार्दिक स्वागत करता हूं, जो नई दिल्ली में हमारे साथ 50 घंटे की बहस और चर्चाओं में शामिल रहने वाले हैं। हमें इस बात की खासतौर पर खुशी है कि आज हमारे बीच काफी संख्या में वुमन लीडर्स और वक्ता मौजूद हैं — समस्त प्रतिनिधियों और वक्ताओं में से 40 प्रतिशत से अधिक महिलाएं हैं। अगले साल हम ​इस दिशा में बराबरी लाने की कोशिश करेंगे।

हमें अफ्रीका से पधारे 58 प्रतिनिधियों का स्वागत करते हुए हमें बेहद खुशी हो रही है — एक महाद्वीप, जिसकी आवाज को आवश्यक तौर पर हमारे भविष्य को बहुत अधिक प्रभावित करना चाहिए। हम अफ्रीका के साथ मजबूत रिश्ते बनाने के इच्छुक हैं — और 10 जनवरी को आप इस रोचक महाद्वीप में एक ग्लोबल डिवेलपमेंट प्लेटफॉर्म की मेजबानी करने की हमारी योजनाओं को जानेंगे।

रायसीना यंग फैलोज़ का तहेदिल से स्वागत। इस साल 29 देशों के 48 यंग लीडर्स यहां पधारे हैं — जो अपने देश की सरकार, मीडिया, व्यापार और सिविल सोसायटी के बेहतरीन प्रतिनिधि हैं। मुझे यह बताते हुए खुशी हो रही है कि इनमें आधे से अधिक युवतियां हैं। ये लगभग 1,500 पूर्व सदस्यों के लगातार बढ़ रहे नेटवर्क में शामिल हो जाएंगे, जिनमें से 100 से अधिक सदस्य इस साल फिर से हमारे साथ जुड़ने जा रहे हैं।

हमने इस मंच पर 200 छात्रों और युवा विचारकों को भी आमंत्रित किया है, जिनमें रूस का एक युवा प्रतिनिधिमंडल शामिल है। हम इस समूह का तहेदिल से स्वागत करते हैं और उस दुनिया के बारे में इनके विचार जानने को उत्सुक हैं, जो इन लोगों को विरासत में मिलने वाली है। हम अपने मंच को अलग बनाना चाहते हैं — हम इसे एक ऐसा स्थान बनाने की कोशिश कर रहे हैं, जहां युवाओं के विचार भविष्य में होने वाले विचार-विमर्शों को आकार दे सके।

हम इस साल रायसीना में होने वाली बातचीत और विचार-विमर्श में आप सभी का स्वागत करते हैं!

इस साल हम 80 से ज्यादा चर्चाओं का आयोजन करने जा रहे हैं: अगले तीन दिन तक 41 पैनल्स, 7 प्रमुख भाषणों, 3 अनौपचारिक वार्तालाप, 25 से अधिक स्टूडियो पैनल्स और 9 संबद्ध कार्यक्रमों का आयोजन किया जाएगा।

मैंने और मेरे सहयोगियों ने ऐसा वातावरण बनाने का प्रयास किया है, जो विविधता और प्रतिभा की दृष्टि से समृद्ध हो तथा चर्चा और विचार-विमर्श के लिए अनुकूल हो।

मुझे यकीन है कि अगले दो दिन जानकारी और उत्साह से भरपूर होंगे, और निश्चित रूप से उन प्रस्तावों और साझेदारियों के रूप में परिणत होंगे, जिनसें हमें हमारी गतिशील और जटिल दुनिया का मार्गदर्शन करने में मदद मिलेगी।

रायसीना डायलॉग 2019 में आपका तहेदिल से स्वागत है!

मैं प्रारंभिक उद्बोधन के लिए ORF के अध्यक्ष श्री संजय जोशी का स्वागत करता हूं।