Financing green transition amid political extremes
The world does not lack capital. The harder question is how political choices shape where it goes and whether governments can make long term investment viable.
As Israelis go to the polls today, the country’s political direction has implications beyond its borders. In a world of hardening political ideologies, elections can influence not only laws but also the conditions under which businesses, banks and institutional investors allocate capital.
This matters for the global green transition. Governments alone cannot finance the transformation. But how can private capital be persuaded to support these priorities? The answer lies not only in economics, but also in politics.
Who controls capital, and what shapes its direction?
The USA is central to global capital, accounting for close to half of global listed equity market capitalization. Its investment funds and financial institutions also play an outsized role in financing businesses worldwide.
And while it is popular opinion to attribute the financial influence of a country or institution to a religious or ethnic community, the truth is global capital is not necessarily controlled by a single group. Banks, asset managers, funds, insurers, and private equity firms manage money from households, companies, and asset owners. Those supplying capital, managing it, and making investment decisions are not necessarily the same, and all of them collectively can exercise substantial influence over investment decisions.
The more useful question is who has the power to allocate capital, what incentives guide those decisions and which risks make an investment acceptable!
Moreover, the call for private capital to support the green transition must address the commercial and political conditions that shape their decisions, not simply ask financial institutions to do more.
Turning public priorities into investable projects
Consider an industrial company replacing carbon-intensive production with clean technology. The investment may cut emissions and improve competitiveness over time; but requires substantial upfront spending. Technology risks, higher initial costs, or uncertain demand for lower-carbon products may weaken its business case.
In short, a bank cannot lend simply because a project benefits the climate. It needs confidence in the borrower’s future cash flows. Governments can help through predictable regulation, targeted incentives, enabling infrastructure, and carefully designed risk-sharing instruments.
Capital does not move simply because governments announce climate ambitions. It moves when policy, project economics and risk allocation make investment credible.
Why political polarization matters
Political disagreement is normal in a democracy. The problem arises when every ideological change of government threatens to reverse existing policies. Investors financing projects with 20- or 30-year horizons need confidence that the rules will remain consistent and credible.
Withdrawn incentives, uncertain standards, or public guarantees announced without firm commitments can increase financing costs or delay investment. Uncertainty can also favour projects with quicker returns over long term industrial transformation.
This is not a case for the political left over the right, or vice versa. Right-leaning governments can support clean technology through innovation, private enterprise, and energy security. Left-leaning governments can pursue public spending programs.
The useful distinction is between policies that are durable, economically credible, and accountable, and those driven by ideological signaling. Either political camp can produce either outcome.
Israel and the wider financial system
Israel’s election takes place amid wider debates about national security, public spending, economic growth, and the role of government, and it would be an exaggeration to suggest that the result alone will determine global climate finance.
However, it may impact capital allocation decisions that matter beyond its borders, not just the US but also globally, with potential decisions that may influence clean energy investment, industrial policy, impact financing, and overall economics of green projects.
This is against a backdrop when Europe, the major spender on climate action, is witnessing slower growth, constrained public finances and increased defense spending that is competing with development spending decisions.
The broader global context makes credible decisions about public spending and investment support increasingly important, and whether political systems can support private capital to respond to the green transition.
The real test of political leadership
Private capital cannot finance every project with environmental or social benefits. The task is to identify where commercial finance can work independently, where better regulation can improve returns and where targeted public support can address market failures.
Such support must be transparent, proportionate, and accountable. Otherwise, risk-sharing can transfer private losses to taxpayers without delivering public benefits. Effective implementation requires credible cash flows, capable borrowers, reliable data, measurable outcomes, and financing structures suited to actual risks.
Elections represent competing visions of society, but political choices also shape which industries expand, which technologies reach commercial scale, and which communities can afford the transition.
The danger of ideological polarization is that governments become less capable of sustaining credible policies, making difficult trade-offs, and correcting mistakes without turning every adjustment into another ideological contest.
As Israel votes today, the more useful test is not whether a policy carries a left or right label, but whether it creates the conditions for long-term private sector investment towards an orderly green transition. Capital cannot substitute for politics. But political leadership can determine how capital could become a force for sustainable economic transformation.