At last month’s COP26 climate summit, hundreds of financial institutions declared that they would put trillions of dollars to work to finance solutions to climate change.
Yet a major barrier stands in the way: The world’s financial system actually impedes the flow of finance to developing countries, creating a financial death trap for many.
Economic development depends on investments in three main kinds of capital: human capital (health and education), infrastructure (power, digital, transport and urban) and businesses. Poorer countries have lower levels per person of each kind of capital, and therefore also have the potential to grow rapidly by investing in a balanced way across them. These days, that growth can and should be green and digital, avoiding the high-pollution growth of the past.