Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

The entrepreneurial state must lead on climate change

Mariana Mazzucato 7th November 2022

As a much-touted green alliance of financial institutions crumbles, the private sector has once again proved unequal to the task of climate leadership.

entrepreneurial state,climate change,climate finance
The state needs to mobilise and co-ordinate investment if new climate technologies, such as these offshore-wind-turbine blades in the Netherlands, are to be deployed rapidly and at scale (corlaffra/shutterstock.com)

In recent weeks, several members of the Glasgow Financial Alliance on Net Zero—a group of 450 financial institutions—have quit over concerns about the cost of delivering on their climate commitments. In dropping out, they have given the lie to the notion that private financial institutions can lead the transition to a carbon-neutral economy. What the transition really needs is more ambitious states that will go beyond market-fixing to become market shapers.

The market-led approach is rooted in the belief that private financial institutions allocate capital more effectively than anyone else. The implication is that states should refrain from ‘picking winners’ or ‘distorting’ market competition, and confine themselves to ‘de-risking’ green investment opportunities to make them more appealing to mainstream private investors.

But modern economic history tells a different story. In many places and on many occasions, it is public actors which have taken the lead in shaping and creating markets that then deliver benefits for both the private sector and society more broadly. Many major technological breakthroughs which we now take for granted happened only because public entities made investments which the private sector found too risky.

Delivering a global transition

The real story is thus quite different from the prevailing myth. We owe many economic successes not to public actors which got out of the way but to an ‘entrepreneurial state’ that took the lead. Moreover, the market-led approach is at odds with the goal of delivering a just, global, green transition in which the costs and risks are shared fairly within and between countries. ‘De-risking’ assumes a strategy that socialises costs and privatises profits.

Private finance still has a crucial role to play, of course. But only the public sector can mobilise and co-ordinate investment on the scale required to decarbonise the global economy. The question, then, is what this approach should include.



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



First, states should embrace their roles as ‘investors of first resort’, rather than waiting to step in only as ‘lenders of last resort’. Around the world, public financial institutions deploy many billions of dollars each year and, owing to their distinct design and governance structures, they can supply the kind of long-term, patient and mission-oriented finance which the private sector is often unwilling to provide. The evidence shows that direct lending from well-governed public banks can play a powerful market-shaping role by informing perceptions of future investment opportunities.

Secondly, we must rethink the relationship between the public and private sectors, especially when it comes to sharing risks and rewards. When public entities take risks to achieve societal goals, the private sector should not appropriate the financial rewards.

For example, if a government is funding major renewable-energy projects and other green investments, it could take an equity stake in them. Returns can also be socialised by assigning a proportion of intellectual-property rights to the state, allowing profits to be re-invested in new green projects. Importantly, firms benefiting from public finance should be subject to conditions that align their business activities with green industrial-policy objectives, fair labour practices and other priorities.

Strengthening rules and standards

Thirdly, to direct private investment to green activities, and to curtail investment in harmful ones, states must strengthen and update the rules governing financial markets. Such a regime could include central banks introducing allocative green credit policies, and regulators strengthening rules and standards to prevent ‘greenwashing’ and regulatory arbitrage.

Fourthly, policy-makers should recognise that debt finance—whether provided by the public or the private sector—is not necessarily a substitute for direct fiscal expenditure. The logic of repayable financial instruments is not easily reconciled with the public-good features of some climate-related investments. Investments in climate justice and reforestation will yield far-reaching returns but not necessarily of the kind that can be used to repay a loan. Navigating these issues and delivering investment at the necessary scale will require strategic co-ordination across all areas of social, environmental, fiscal, monetary and industrial policy-making.

Finally, more must be done to provide sufficient fiscal space for countries in the global south to pursue their own domestic decarbonisation and adaptation agendas. Many countries, including those that are most exposed to accelerated climate breakdown, are facing significant debt overhangs. It is now imperative that global-north debtor countries—which are responsible for most of the emissions in the atmosphere—help to reduce these burdens through debt write-offs, debt restructuring, loss-and-damage compensation or by replacing climate loans with climate grants.

Dramatically scaled up

To limit catastrophic global warming, the funding for climate mitigation and adaptation must be scaled up dramatically. But the quality of the financing also matters. Rather than holding out hope that private financial institutions will translate their highly publicised trillion-dollar net-zero pledges into credible, accountable action, we should demand that states assume their proper role. That means mobilising and directing finance toward clear and ambitious climate goals, and shaping financial markets to align with those goals. Closing the financing gap requires a radical redesign of the financial architecture and a substantive shift in financial flows. Neither will happen without policy interventions.

To specify the changes that are needed, I moderated an all-women panel today at COP27 with the Barbadian prime inister, Mia Mottley, the World Trade Organization director-general, Ngozi Okonjo-Iweala, the Egyptian minister of planning and economic development, Hala El Said, and the Scottish first minister, Nicola Sturgeon. The challenges are urgent. If states fail to take the lead on climate finance, the green transition will remain out of reach.

Republication forbidden—copyright Project Syndicate 2022, ‘The entrepreneurial state must lead on climate change’

Mariana Mazzucato
Mariana Mazzucato

Mariana Mazzucato is professor in the economics of innovation and public value at University College London, founding director of the UCL Institute for Innovation and Public Purpose and a co-chair of the Global Commission on the Economics of Water.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834670 4977 8362 2b68e3507e6c 2 Europe’s Far Right Copies Trump—And It’s WorkingPaul Mason
u421983467645c be21 1cdd415d1c01 2 America’s Systemic Chaos Strategy: Europe Must Forge a New PathMario Pianta
u42198346ae 124dc10ce3a0 0 When Ideology Trumps Economic InterestsDani Rodrik
u4219834676e9f0d82cb8a5 2 The Competitiveness Trap: Why Only Shared Prosperity Delivers Economic Strength—and Resilience Against the Far RightMarija Bartl

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp