A new experiment in mixed finance

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Greetings from Washington where the Financial Times is about to hold its USA Weekend party. This year, she will moderate a special panel on the backlash to environmental, social and governance issues, with Roy Swan of the Ford Foundation and Zeynep Ton of MIT; there will be much to discuss given the degree to which Republicans keep upping the ante in the fight against ESG, to the consternation of some US company boards (and, of course, the rest of the world). Send me an email with questions to ask.

Meanwhile, in today’s newsletter we look at a prime example of a public-private partnership that has just emerged that could spark a debate at the World Bank with the arrival at the helm of its new leader Ajay Banga; doubly so since Emmanuel Macron, the French president, is expected to host a summit with Mia Mottley, leader of Barbados, in Paris next month to push for reform of the global financial architecture. We will be writing more about this so-called Bridgetown Initiative in the coming weeks.

And check out our story below, which offers a new (more optimistic) perspective on how AI is changing the business world. Or for more cheer, look to the future of sustainable seafood. As always, let us know what you think. (Gillian Tett)

A new $300 million idea for Ajay Banga

In recent months, we have written extensively about the World Bank and the widespread criticism it has faced from US environmental activists and Democratic politicians over its alleged failure to finance the green transition in poor countries. And now that Ajay Banga has been formally announced as the new head of the bank, replacing David Malpass, expectations are running high that the institution will soon unveil some big policy changes and that Banga will work his magic to push them through.

He will face a monumental challenge to realize these hopes, particularly as an outsider to the bank. But as the reform debate moves forward, it’s worth looking beyond the World Bank to see what other multi-development banks are doing.

Let’s take the European Bank for Reconstruction and Development. Unlike other MDBs, it has seen a slight increase in the volume of “blended finance” operations (i.e. those that use public funds to de-risk private investment) in recent years, albeit from a low base. And this week unveiled a new twist: a joint project between the EBRD, the EU and emerging markets asset manager ILX to support “sustainable development, especially in smart climate solutions, digital transformation and financial inclusion” in Eastern Europe.

The idea is that the projects will be guaranteed by the EU, supported and organized by the EBRD, and ILX – which is mostly supported by Dutch pension money – will invest alongside it. Strictly speaking, this is not classic “blended finance”, as ILX private sector investment is separate; but it’s a surprising variation of the concept. And while the original project is only $300 million in size, it could be scaled up in the future, if it works.

“[This] sets a new benchmark in development finance,” said Valdis Dombrovskis, Executive Vice-President of the European Commission, who hopes this is “a new model that can inspire other international financial institutions and private investors to step up sustainable investing and green”. More specifically, as the EU has now embarked on a “Gateway” strategy, which aims to invest $300 billion in green projects by 2027, it is eager to attract private funds with projects like this.

Of course, if developing nations are to receive the support they need to tackle climate change, blended finance projects will eventually need to involve trillions, not millions, of dollars. And the question of how to get those trillions moving remains a very sensitive one, which will be a major topic of discussion at next month’s summit in Paris to discuss Mia Mottley’s “Bridgetown Initiative.” But the EBRD-ILX deal at least shows that experimentation is heating up. This is a good thing. (Gillian Tett)

Artificial intelligence is forcing tech companies to come clean about energy use

US tech giants have been big winners in the sustainable investing movement in recent years and dominate the top spots in most environmental, social and governance funds.

But now the tech giants have to contend with clean energy, as their AI products gobble up ever-increasing amounts of electricity.

In a comparison of four models used for natural language processing in AI, GPT-3, the tool created by OpenAI, consumed more energy and emitted more carbon dioxide into the atmosphere, according to a Stanford University report published this week. ‘year. (And GPT-3 has already been replaced by an even more powerful model.)

Microsoft, the most popular stock in ESG funds, has invested $10 billion in OpenAI, fueling an AI race among tech giants.

“If AI is going to grow to the level that is being talked about in the headlines today, the two biggest things that are needed are more data centers around the world and very, very significant increases in electricity to power those data centers.” Connor Teskey, president of Brookfield Asset Management, told investors this month.

Data storage vendors are also rushing to offer products that save energy and can reduce emissions for AI users.

Pure Storage, which makes data center storage systems, is help Meta build an AI supercomputer. Meta CEO Mark Zuckerberg said the company plans to launch new AI products in the coming months.

Pure Storage claims its solid-state storage drives can reduce power consumption and cooling needs compared to traditional spinning hard drives.

“Our job in this world is to make the storage and data management footprint as energy efficient as possible,” said Robert Lee, Chief Technology Officer at Pure Storage.

Some tech companies have already identified data storage as a problematic source of carbon. CrowdStrike, a cybersecurity firm, said it is looking to bring data centers closer to renewable energy supplies. At game maker Activision Blizzard, 71 percent of data center electricity use comes from renewable energy, and the company will only move to new facilities that run on 100 percent clean energy, a spokesperson told me.

Lawmakers are also taking notice of emissions from data centers. Oregon representatives proposed a bill this year that would require these facilities to reduce emissions by 60 percent by 2027.

The bill didn’t pass this year, but as AI draws increasing scrutiny on this issue, regulations affecting data center emissions are about to become more common. (Patrick Temple West)

Smart reading

If you thought being a fisherman automatically gave you a moral edge over carnivores, think again: As a new FT piece shows, the fishing industry has an uneven record of sustainability. But efforts are underway to change this. Read more in this interactive story.

Moral Money Summit in Europe

Join us in London, or online, for the third edition Moral Money Summit in Europe on May 23-24. Leading investors, businesses and policy makers will come together to discuss what needs to happen to unlock a more sustainable, equitable and inclusive economy.