Interview with Kirsten Dunlop

I would sum it up in two things: consistency of follow through on the one hand, and ambition in both direction and financial innovation on the other, with the objective of working to mainstream all aspects of the financial system towards a sustainable sufficiency-based economy. We need to stop talking about ‘green’ finance as if it were an elective sub-sector of core finance.

From a policy perspective, it is essential that the EU stay steady on the path set by the EU Green Deal and the Fit for 55 package as those regulations come into play, maintaining its commitments to climate, nature and a just transition. The elements addressed in the EU Taxonomy, go in the right direction, but there is much more to be done to enable the financing of positive action and the reshaping of the economy that will not be achieved if the EU gives mixed signals to financial institutions and businesses. Above all, persistence and attention to addressing inconsistencies and fragmentation in policies should be a critical focus for the next 2 years (for example between the Common Agricultural Policy, Climate Law and the Nature Restoration Law)…

Secondly, we need to go further and faster. Europe is the fastest warming continent. Given the extreme unpredictability of the next years, ambition needs to lift and respond to the implications of achieving a whole of economy transformation. That means it is vital to introduce new instruments and new forms of financing that support and accelerate systemic change. One of the most needed innovations is place-based portfolio financing, whereby grants or concessional financing support multiple solutions in a specific context, like cities, regions or value chains, to enable the exploration and testing of the relationships between solutions. By directing resources to the effort to understand interdependencies, combinations and coordinated effects, we can boost system transformations instead of defaulting to incremental change. Place-based portfolio financing ensures that follow-on private investment goes to effective impact at speed and scale, rather than individual ventures or ‘bankable assets’ that often reinforce siloed, incremental outcomes.   

Portfolio financing could trigger financial instruments and institutions to evolve faster for example towards multi-asset class city or bioregional bonds and, even better, new classes of assets that direct investment to engage with the interconnected, complex adaptive nature of the solutions and transitions. For example, shifting from singular, sectoral categories – like ‘cement’ or ‘apartment blocks’ – to investing in ‘regenerative housing’ so as to incentivise a mix of new materials, practices, users, rules and planning that will enable cleaner air, greening of the environment, net-zero use of energy and positive health outcomes all of which are climate resilient and good for business.  

A systemic investing, poly-capital approach that layers and sequences different types of capital, project financing, investment and ownership would help to accelerate systems change by enabling greater coordination between public and private funding partners to move from isolated millions to interconnected billions for programmes across Europe. This approach would ensure, for example, the momentum and scaling of world-leading EU programmes like the EU Missions or national and bioregional Deep Demonstrations across Europe.   

Finally, the EU must find the courage to introduce the true cost of products and services into our economic system and cost of capital – pricing both in terms of impact on planetary boundaries and in terms of climate resilience. It must address the perversities in the market by moving subsidies away from high-emissions products and services like oil, gas and industrial agriculture and rebalance affordability and accessibility towards sustainable products, services and actors – small businesses and farmers. Greater conditionality and differential lending and pricing would support such deliberate shaping of the economy towards sustainable regenerative solutions and business models. 

From a financial systems perspective: I would argue that the Financial Stability Board has a key, as yet untapped, role to play. When the FSB took the decision in 2009 to introduce the idea of strategic risk and subsequently systemic risk, and with it, prudential and governance requirements for financial institutions considered systemically important (SIFIs) and therefore ‘too big to fail’ (TBTF reforms), banks and insurers were forced to act and largely did so. At this point in the world, we need systemic action and intervention at speed and at the scale of the whole system. If the FSB were to acknowledge the implications of the systemic risks we are now facing and introduce conditionality and intervention requirements for systemically important global value chains (e.g. food, water and energy systems) considered ‘too critical to global economic stability not to transform’, financial institutions and the governments that underwrite them would receive the directional signal they need to move capital more decisively.

More broadly, we see that mobilisation of individual and collective effort to take action on climate and nature based on scientific evidence is not sufficient, no matter how good and how resounding evidence-based conclusions are. Since the action we need has largely to do with ourselves – changing the human design for life – we need to reforge an alliance between science and arts as an absolute priority. Meaning making, cultural practices and creative stimulus of imagination need to be reintegrated into policy making, civic institutions, businesses and industry, so that we can achieve the transformations we need in hearts, minds and habits – including a paradigmatic shift in core economics. We need to generate new narratives and new norms that are aspirational, inspirational, relevant to each context, so that a sustainable future becomes believable. This means reviving our social imagination, but it also means acknowledging the emotional experience of this order of transformation – the grief, anxiety and oscillations of emotions that are affecting all of us. By making space for catharsis and healing, we become creative in uncertainty and through transformation. For that we need to bring our capabilities in creativity and expression, culture and narrative building back together with our abilities in analysis and engineering: require, for example, ambidextrous skills in teams and individuals, and insist on STEAM degrees that combine humanities with science and technology. Europe is uniquely placed to do this.

In the face of extreme uncertainty, learning to work across the sectoral and disciplinary boundaries and siloes that we have compartmentalised our world into is urgent. Radical collaboration – going to the roots of distributed and collective capacity building – is the most effective tool we all have at our disposal to enable effective multi-level and multi-scale action. Through radical collaboration we can facilitate collective learning. Communities can learn from one another; cohorts of cities and regions; small and medium enterprises can learn together across sectors. We can learn from our past. We have collectively gone through moments of extraordinary and large-scale change, where 'Marshall Plan thinking' and Keynesian economics helped to design for whole systems change and financing. And we can learn into our future: in particular by paying greater attention to designing and directing partnership with A.I. – through algorithmic regulation for example – rather than waiting for it to lace itself into our decision-making with little shared understanding of the principles and values with which it is evolving. 

I referred earlier to addressing policy incoherencies. Europe has policies and climate laws that are among the most advanced in the world, and it has many of the solutions needed to implement them. But these policies are fragmented and difficult to engage with at scale or at speed. Policy strategies are implemented according to the Ministry or the EU DG they were conceived in and sometimes contradict one another. There are many solutions in communities/localities or cities that do not get scaled up to the national level. Start-ups have innovative solutions that don’t get adopted by incumbents. Often, innovative solutions don’t make it because ‘the system’ is not interested in changing itself.

Climate and nature solutions require holistic, systemic and dynamic approaches, that pay attention to the distribution of resources, power and affordability across value chains and to coherence in requirements and incentives for all actors in rapidly changing circumstances. Coordination of systemic change is complex. Effective action needs complexity appropriate standards, tools, processes and aligned incentives, none of which are widely diffused. To unlock large-scale socio-economic transformation, the EU needs to join its own dots, focusing on systemic implementation of policies, systems thinking and significantly greater agility and flexibility in the utilisation of available resources and capabilities. In this way European farmers, for example, could benefit from regenerative agriculture, environmental protection and climate finance rather than losing out because disconnected measures result in a concentration of benefits amongst large industry actors.

The Horizon Europe Missions offer a framework for systems change as long as they themselves join up (for example the Mission on Cities and the Mission on Climate Adaptation focused on regions). New initiatives like the Systems Transformation Hub, launched in January this year, are designed to help. Large scale national or regional ‘demonstrations’ – Climate-KIC is involved a several of these – can create the conditions to integrate policy and practice, surfacing logical fallacies and, by the same token, opportunities for investing in mutually reinforcing interventions. Such initiatives help to demonstrate the power of combining incremental innovations, breakthrough solutions and social innovation– different business models or different ways of working amongst a variety of stakeholders.

When it comes to unlocking private capital, the Cities Mission and other large urban transformation initiatives constitute a significant demand-driver for new materials and innovative solutions and therefore a major driver for Europe’s green industrial transformation and industrial strategy in an increasingly competitive geo-political context. The EU Missions can be leveraged to create lead markets for green and digital industrial transition – accelerating implementation of the EU Green Deal for large and small companies across Europe. This could mobilise capital markets and generate powerful learnings and incentives to accelerate the sustainable re-industrialisation of Europe. In that context, Europe’s Industry 5.0 principles provide the guidelines for a coherent industrial strategy that rewards sustainable principles, intersectoral collaboration and just transition, aligned with EU values.

In other words, to achieve its 2040 climate goals, the EU needs to take risk to manage risk, using a transformative portfolio approach and agile investment in research and innovation through multi-level action, grounded in the needs of cities, regions, businesses and communities. If Europe can close the gap between research, policy and implementation to create the conditions for early adoption, diffusion and market making it could unlock the power of mutually reinforcing innovation and investment cycles and locally grounded decision making. But one critical success factor must not be forgotten: a vast and growing skills gap which requires a rethink of the future of work towards greater versatility and multi-skilling – every job will need to be a green job in the next decades.