As debates heat up over who’s responsible to pay for cleaning up the climate mess, the basic question of just what is “climate finance” keeps recurring. Too often, disappointingly, we see the concept narrowly framed by negotiators and policymakers as a matter of dollars and cents—an abstraction of reducing climate finance to finding and unlocking money "pots." This reductionist view strips finance of its broader and more robust role in society.
It’s a critical error to equate finance solely with money or other “innovative” monetary forms like loans, bonds, guarantees, derivatives or grants.
This oversimplification—treating finance as the monetization of human needs (through putting a price on needs like food, water, healthcare, and even climate action)—gained momentum in the 1970s and 1980s, particularly with the rise of neoliberal policies in economies like the UK and the US. Privatization, deregulation, and market liberalization became dominant forces, reframing finance as a tool to commodify and quantify almost every aspect of life.
This reduction is not only a distortion but also a constraint on our understanding of the full scope of finance, which permeates everyday life from cradle to grave.
When viewed in its entirety, finance is not a static monetary measure; it is a capability—a dynamic system that links human problems to the resources necessary to solve them. This capability evolves over time, adapting to different needs, geographies, and contexts. What works today may not suffice tomorrow, and what proves effective in one place may fail elsewhere.
By adjusting our lens we unlock a deeper understanding of its potential - as a capability to mobilize diverse resources—whether monetary, technological, social, or political—to address human needs.
Consider a simple, everyday example—daily bread. How do we connect the hungry man with the baker, who in turn needs to connect with the wheat farmer, who relies on suppliers for fertilizer and seed? In many cases, this chain of connections is mediated through a simple payment system that ensures trust and improves the efficiency of the exchange. This spans from basics of dollars and cents to a credit or debit card, to MPESA mobile money transfer solution, even to non-monetary / banking systems that can build trust within social setup.
Now, imagine the town grows tenfold, and the baker can no longer meet demand with the current bakery size. He needs a bigger bakery with larger ovens, yet all he can sell is the daily bread. How do we fulfill this immediate need for expansion without disrupting the daily bread supply? Here, we must move beyond simple monetary exchanges to devise a mechanism that enables the baker to acquire the materials for construction and the necessary oven technology—perhaps within a year—while allowing him to pay back the investment over time, either in cash or in kind. This can also be moderated through social system where villagers can give materials in kind. What has improved efficiency in enabling such needs is the mortgage market.
Next, imagine the new larger bakery is thriving, but one day the oven unexpectedly breaks down. The baker would need a reliable, rapid solution for repair. This scenario calls for a financial mechanism that can respond quickly to such sudden, unforeseen disruptions. It can be an insurance policy, it can be a social club of entrepreneurs, it can be the government system that guarantees support for entrepreneurs.
Finally, consider a more extreme case: a tsunami sweeps through the town, destroying homes, livelihoods, as well as the the bakery which has been built over many years. All of it gone in a few moments! Once the waters recede, how do we restore the bakery and help the people rebuild their lives? In this instance, the need is not just for a quick fix, but for large-scale recovery systems that can mobilize resources swiftly and effectively.
These four scenarios vividly capture the pervasive role of finance in enabling our everyday lives, from cradle to grave. They can neatly be mapped into a matrix that illustrates how finance operates across two critical dimensions: short vs. long time horizons, and expected vs. unexpected needs.
Finance as a Capability
Matrix of Finance as a Capability |
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Improving efficiency for short-term, expected needs: This is about processing and optimizing everyday financial processes – buying bread, paying monthly rent or for internet. Finance here is about making such small scale but frequent transactions easier, faster, safer. Think of the basic innovation of a bank account (as opposed to stashing money under a mattress - the genius of Equity Bank in Kenya) , or MPESA, which made value transfer faster and more secure using a device well accepted to all cadres of society.
Smoothing resource distribution over a longer time horizon: Finance also plays a crucial role in facilitating long-term investments. Think of mortgages, which allow people to acquire homes today while paying for them over many years. This financial capability is about satisfying a need today and creating trust in the system that the resources will be paid back. This does not necessarily have to happen in a formal banking space. Sometimes social arrangements across age groups or clans can meet this need so that one generation is "guaranteed" by the older generation to be gifted a house when they start a family and they in turn through trust pass it forward to another generation in years to come.
Contingency for unexpected but manageable disruptions: Finance is also about creating safety net for unforeseen events that though not catastrophic, like machine breakdowns or illness, can cause disruptions and if not well managed can negatively impact daily life. Think of it as the first two steps of the social ladder broken. Insurance can play a role here. Social capital also fills this role in many African communities. When a loved one passes away, extended family and social institutions provide support—sometimes in non-monetary ways—that prevent financial and social distress as the family mourns and recovers from loss.
Bailouts: for extreme, unpredictable shocks. Large-scale disruptions like pandemics, wars, or climate disasters demand a capability that can bail out the entire community often through pulling resources from other communities that did not suffer the loss or creating mechanisms to save up at a large scale over the long term for these events. Historical examples like the Marshall Plan or recent mortgage bailouts show how finance steps in to prevent long-term economic collapse. Barbados’ Prime Minister Mia Mottley, for instance, argues that the global financial system lacks accessible bailout mechanisms for vulnerable nations recovering from climate-induced disasters, pushing them into debt distress as they struggle to rebuild while servicing development loans.
Clarifying the definition of climate finance is not merely an academic exercise; it is an urgent necessity that empowers communities to decolonize the prevailing reductive capitalistic framing of finance as mere monetary metrics.
Instead, by embracing a broader understanding of finance as a complex, multifaceted capability that connects human needs with essential resource we re-establishes the vital link between “monetized resources” and the human experience, placing the human face back at the center of the raging debates. In this way we transcends the misguided claims of private capital as a panacea to get to adequate resources or grants/ low cost financing as benevolence from one group to another; it becomes a quest for justice. It is an advocacy for a climate finance framework capable of mobilizing resources to tackle the climate crisis for all communities, especially the most vulnerable.
After all, the raging debate on climate finance not a matter of charity or entitlement; it is a fundamental question of capability and basic right to survival.
"Building on Dutch-American sociologist Saskia Sassen's theoretical perspective of finance as a capability and insights from British Economist Sir John Anderson Kay's lecture, 'Other People's Money: Making Finance Serve the Needs of the Economy,' delivered at the 3rd FSD Kenya Public Annual Lecture in 2017."
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