A familiar question appears in almost every climate-finance discussion:
How do we attract private capital?
It sounds sensible. Governments face fiscal pressure. Development budgets are constrained. The financing needs are enormous. Private markets control much larger pools of money than philanthropy or aid.
But the question contains an assumption.
It assumes private capital is the destination.
Sometimes it is.
Sometimes it should not be.
Take extreme heat in a city. A company may have a clear commercial reason to invest in efficient cooling for its factory. A bank may finance energy-efficient buildings because repayments are predictable. An insurer may offer heat-related protection if risks can be priced.
But who pays for a citywide heat-risk map?
Who finances the coordination required to create workplace protocols for informal workers?
Who pays to test whether a new cooling intervention works in low-income settlements?
Who finances public shade on streets where there is no obvious revenue stream?
Trying to make all of these commercially investable can distort the solution.
The better starting question is:
What prevents action, and what kind of capital is best suited to remove that constraint?
Different forms of capital are good at different things.
Philanthropy can take early risk, fund evidence, support experimentation and pay for public goods.
Government finance can fund essential services and infrastructure whose benefits belong broadly to society.
Concessional capital can absorb risks that commercial investors cannot yet take.
Commercial capital can scale activities where revenues and risk-adjusted returns are credible.
Insurance can transfer specific risks.
Household or enterprise finance can support investments where users have both an incentive and an ability to pay.
The challenge is not attracting the maximum amount of private capital.
It is assigning each problem to capital capable of solving it.
There is a reasonable objection.
This language can become an excuse for weak financial discipline. Almost any programme can claim it needs grant funding because commercial finance is “not appropriate.”
So appropriate capital requires a second question:
Why is this form of capital appropriate now, and what should change because it was used?
A philanthropic grant that continually subsidises an activity capable of becoming commercially viable may be poor philanthropy.
Concessional finance that permanently hides an uneconomic business model may be poor finance.
Public funding that assumes markets will solve a public-good problem may be equally misguided.
Each layer of capital needs a job.
And where possible, it needs an exit or transition.
A useful analogy is medicine. We would not ask which medicine should be maximised. Antibiotics, anaesthesia, vaccines and painkillers perform different functions. The right question is what the patient needs at that moment.
Capital works similarly.
The financing strategy should follow the diagnosis.
This changes the meaning of blended finance too. Blending should not mean adding several sources of money until an investment appears possible. It should mean understanding precisely which risk prevents each actor from participating and assigning that risk to the actor best able to carry it.
Suppose a resilient-energy project has proven technology but uncertain early demand.
Philanthropy might fund market testing.
Government might establish enabling regulation.
Concessional capital might absorb first-loss risk.
Commercial lenders might finance deployment once revenue becomes predictable.
The sophistication is not in having four kinds of capital.
It is in knowing why each one is there.
This also explains why funding the conditions for action matters. Sometimes the missing ingredient is not investment capital at all. It is evidence, project preparation, regulation, trust or institutional capability.
Until that constraint is removed, searching for investors is premature.
So perhaps climate-finance strategy should begin one step earlier than it usually does.
Not:
Who has money?
But:
What is stopping action?
Then:
Who is best equipped to remove that obstacle?
Only after answering those questions do we know what capital we actually need.
Arunabha Bhattacharya 
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