Green Banking or Public Banks? The Choice between Profit-driven and Public-driven approaches to Climate Finance

There are over 530 public development banks (PDBs) in over 150 countries worldwide. Together they have $23 trillion in assets and finance around 10–12 per cent of global investment (Güngen and Marois 2025).

What exactly are PDBs and what are their relationships to climate-aligned finance? Public banks are financial institutions that are publicly owned or governed, or have a public purpose mandate. PDBs differ from most public commercial and universal banks in that they often operate in accordance with governmental policy objectives. Unlike most commercial banks, public and private, PDBs tend to be driven by mandates rather than profit. They operate at national, sub-national and multilateral levels. 

The scale of projects that PDBs invest in varies widely. Bigger public development banks with large-scale projects are typically the focus of policy-makers. Governments often prefer to invest in ‘transformative’ infrastructure projects, such as roads, bridges, dams, water and sewage systems, canals, railways, subways, harbors, airports, energy systems (in particular renewables), energy grids, communications, and oil and gas (Lewin et al. 2022). However, there are also PDBs that support municipalities, other public institutions, and private sector actors such as small and medium-sized enterprises and cooperatives, as well as large corporations (Güngen and Marois 2025). 

Despite their potential, public banks are not inherently progressive them (Marois 2022). While public banks can and do pursue progressive policy goals, they also support private sector profit maximization. What public banks do depends on what society commands of them. Therefore, it’s better to see public banks as dynamic, contested, and adaptable institutions, as their function within the wider economy depends on the social forces shaping the economic development agenda (Marois 2021, 10).

This study looks into the relation between public development banks and climate-aligned finance. Climate financing refers to the monetary resources needed to transition our economies away from carbon-emitting activities. The globally agreed goal, established by the 2015 Paris Agreement, is to limit the increase in average global temperatures to 1.5°C above pre-industrial levels (Christophers 2024, xvi). Currently, the predominant approach to acquiring the monetary resources needed to achieve this involves private sector, profit-driven and market-oriented ‘blended finance’ practices.  

Blended finance refers to using a ‘blend’ of public and private sector capital for development investments (OECD 2021).  ‘Leveraging’ refers to using public finance to mobilize a larger amount of private finance for investment (Griffiths 2012). The story goes that leveraging X dollars of public money will lead to Y dollars of private money being attracted. The ratio of public to private dollars should be greater than 1:1, with advocates often promising much higher ratios. However, this approach blends not just public and private money, but also capacities, responsibilities and risks.

Blended finance is embedded in the framework of public–private partnerships (PPPs): agreements between government entities and private actors to deliver public goods and/or services. The government’s public policy goals are meant to align with the private partners’ objective to make a profit. The effectiveness of the partnership is based on the transfer of sufficient risk from the public partner to the private partner to ensure expected levels of profitability (Whiteside 2019, 4). Private firms which invest in PPPs make money either through being involved in the provision of the public service, or as owners of debt in the projects. The PPP model has been a dominant strategy in development policies for over a decade. It was at the heart of the World Bank’s and IMF’s 2015 ‘Billions to Trillions’ Agenda.

If the PPP model sounds too good to be true, it’s because it is. The attempt to leverage large amounts of private capital with small amounts of public finance has largely been a failure. It’s not from a lack of trying (Cingolani 2022; Summers and Singh 2024). In 2021 it was shown that the leveraging has been in reverse, with the public sector pouring in 4 dollars for every 1 dollar of private money (Steinfort et al. 2024, 1). The public sector has poured billions into PPP projects and market-oriented approaches, but the investment deficit remains. It is more aptly called the ‘Billions for Millions’ debacle. It is clear that the private-sector-driven and profit-oriented model is failing as the gap between what the world needs to reach various development goals and what is being invested continues to widen. 

The Climate Policy Initiative (a research think tank that advocates for blended approaches) states that in order to achieve the 2015 Paris Agreement objects of reaching net-zero carbon emissions by 2050, annual climate financial flows must increase by at least fivefold. Specifically, $7.5 trillion per year of investment is needed between now and 2030 and over $8.8 trillion per year from 2031 to 2050, in the energy, transportation, building and infrastructure, industry, and agriculture, forestry, and other land use sectors (Baudry and Strinati 2025, 1).  The United Nations’  Financing for Sustainable Development Report 2024 estimates the SDG financing and investment gap is between $2.5 trillion and $4 trillion annually (United Nations 2024). Multilateral institutions continue to disproportionately favour PPP/blended finance approaches. 

The discourse has shifted markedly over the past decade. In 2015, the UN and World Bank spoke optimistically of transforming ‘billions to trillions’, yet today the World Bank’s president acknowledges that the phrase was ‘unrealistic’, and its chief economist referred to it as ‘a fantasy’ (The Economist 2025). States in Africa, Latin America and Asia are seeing little of the trillions they were promised in private sector investment. Despite this, the faith in the superiority of markets has not been shaken. If discussions at the UN’s July 2025 Financing for Development conference in Seville are any indication, structural changes to development financing are not likely to happen any time soon (Gabor 2025). That said, the 2025 Sevilla Commitment recognizes the need for accelerated public–public collaborations globally, and notably among public development banks (United Nations 2025).

The failures of the PPP and blended finance model are an opportunity to leverage the power of public banks and public institutions and infrastructure. And there’s already a model that acknowledges these widespread practices. Public–public partnerships (PuPs) are forms of cooperation within and between public sector institutions seeking to collaboratively achieve policy goals. They include cooperation between groups such as local, regional, provincial and/or state governments, school boards, NGOs, unions, community groups, cooperatives, communes, professional organizations, and Indigenous governments. The potential combinations are wide and varied. While decades of privatization and liberalization have eroded government capacity to steer the economy, PuPs are attempting to rebuild this capacity. This is done through a range of mechanisms, including jointly building capacity, sharing skills, and developing expertise. The model is based on collective solidarity between public institutions and the citizens who access their services. Collaboration, not competition, is the key. These forms of cooperation have the potential to redirect financing and bring about social transformation.

PuPs are powerful tools for achieving the green transition without relying on satisfying private investors’ profit motives. Rather than merely funding private profiteering, when properly resourced, governments are able to plan, manage and execute the transition accountably and according to public policy. They can incorporate clear mandates for the delivery of services as a public good, or in line with specific climate targets, into project or service design. PUPs open the door for more collective forms of governance of our economy (Steinfort et al. 2024). Combined with public–community collaboration, they can make sure that climate goals are delivered in people’s interest.  

While less well known than PPPs, there are PuPs in a variety of sectors, including 130 globally in the field of water management. Successful cases of PuPs include peer learning partnerships and associations to govern public utilities. For example, in Cambodia in 2007 the Phnom Penh Water Supply Authority, which supplies water across the nation’s capital entered into a water-operator partnership with Binh Duong Water Supply Sewerage Environment Company, a Vietnamese public water company (Steinfort et al. 2024, 4). And in 2012, the Uruguayan State Water Department and the Municipal Department of Water and Sewerage of Porto Alegre, Brazil, began sharing technical expertise. Both providers committed to incorporating human rights principles into their operations to secure rights to water and sanitation in their respective regions (Ibid, 4). There are many more such pragmatic public-to-public models, which offer promising alternatives to the current dominant pro-private fallacy. 

Given the escalating economic crises and the challenge of financing just transitions, alternative institutions such as public banks are rising in popularity. Various projects are seeking to better understand and document this phenomenon. 

The Finance in Common database, established in 2000, is a collection of globally active public development banks (PDBs Database 2025). To find out the extent to which public banks included in the database deliver on a public purpose, the Transnational Institute and the Public Banking Project reviewed 59 institutions established since 2000. By looking at their mandates, we found that many public financial institutions remain concerned with promoting market-oriented economic growth, developing private markets, and even enabling the privatization of public goods and services. This most likely reflects multilateral and national policy frameworks. Yet it is almost certain that this is not all, or perhaps even most, of what public developments banks do in practice. PDBs globally are very active in supporting public infrastructure, municipalities, public services, and other public banks (Marois 2021; Marois et al. 2024). We were unable to confirm, due to limited resources, whether their committed projects are in fact PPPs or some other form of investment, including PuPS.

We assessed which of the institutions we reviewed fit the criteria for inclusion in the Public Futures project, a collaborative database hosted by the University of Glasgow, Transnational Institute and Public Services International. The Public Futures project collects cases where formerly privatized services and infrastructure are brought back into public ownership and cases where new public services and infrastructure are established under public ownership. It distinguishes between services being provided by authorities and administrations at the municipal, regional, or national level, and services that are run by community organizations. Since 2007, our aim has been to build a body of knowledge on public service provision to strengthen the global network of practitioners, users, organizations, and researchers. As of August 2025, the database features 1,770 reclaimed and new public services across 78 countries, including 55 public–public partnerships, the majority being municipalities partnering to deliver an essential public service. Moving forward, the Public Futures partners are looking to include PDBs collaborating to finance publicly-owned services and infrastructure. This study should be understood as an initial part of this endeavour. 

We have seen a notable increase in public financial institutions being created whose main objective is to mitigate or adapt to climate change. Whether they are publicly owned or just publicly funded, public financial institutions and banks are growing in prominence and relevance to the political economy of climate-aligned development transitions. The public financial institutions known as ‘Green Banks’ in the United States are a prime example of this and are the focus of the remainder of this study.

Introduction to US Green Banks: 

The following section presents case studies of Green Banks in the United States. Green Banks are defined by the US Environmental Protection Agency as ‘public, quasi-public, or nonprofit financing entities that leverage public and private capital to pursue goals for clean energy projects that reduce emissions’ (US EPA 2025). A Green Bank advocacy group the Coalition for Green Capital (CGC) emphasizes that they are ‘mission-driven institutions that use innovative financing to accelerate the transition to clean energy and fight climate change’ (Coalition for Green Capital n.d.). According to the CGC there are about 41 Green Banks across the country. Although they are called ‘banks’, they are not depository institutions, meaning they do not create money or hold deposits for clients. Nor are they public development banks in the usual sense, which typically source capital from financial markets to lend on. They would more accurately be called ‘funds’, as they have a fixed amount of initial capital from which they engage in lending. While their mission is to promote green energy infrastructure, they are also profit-seeking institutions, meaning they seek some surplus from their lending activities but do not seek to maximize their profits like a typical private business. 

This study introduces ten select Green Bank examples (see Table 1), and focuses on four case studies. The ten examples come from across the continental United States, including the West, Northeast, Midwest and South. All ten were started within the last 16 years, with the oldest having been created in 2009 and the newest in 2018. Seven have a state-wide mandate; one is county/municipality based; one is city based; and one is inter-state (New York State). Eight institutions are nonprofits. There is only one fully publicly run Green Bank and another quasi-public example.  
 

Table 1: Green Banks 

*The American Recovery and Reinvestment Act (ARRA) of 2009 directs funding from the Department of Energy to states to invest in renewable energy and energy efficiency.

Green Banks are the most common green public financial institution in the United States. However, the US public banking movement predates the Green Bank phenomenon (see the Public Banking Institute). The roots of public banks in the US extend back to the eighteenth century and colonial-settler ‘Landbanks’ (Marois 2021, 89); advocacy for public banking resurfaced during the Occupy Wall Street movement in 2011. Today, organizations such as the Public Banking Institute play a central role in advancing this agenda by producing research and advocating for the creation of public banks. Advocates frequently highlight the Bank of North Dakota, the US’s only state-owned and state-operated public financial institution, which has been in continuous operation since 1919 and is widely regarded as a model of resilience and success (Brown 2025). State, regional, and local activist groups such as the California Public Banking Alliance have worked to establish new public banks. Their efforts contributed to the passage of the California Public Banking Act in 2019, which authorized local governments to create public banks. However, no new public banks have yet been established through this legislation (Paul and Cumbers 2023). Federal legislation in 2023, the Public Banking Act (H.R. 6775) sponsored by Democratic Representatives Rashida Tlaib and Alexandria Ocasio-Cortez, sought to overcome legal barriers but the Act was not passed. Green Banks thus remain a predominant model of alternative public financing in the country.

From the ten examples listed in Table 1, we chose the four with the most socially progressive credentials for further research: the Colorado Clean Energy Fund, Nevada Clean Energy Fund, Montgomery County Green Bank, and New York City Energy Efficiency Corporation. To compile case studies on these four banks, we sourced data from publicly available information including their websites, financial reports, annual reports and news articles. The case studies offer brief reviews of the banks’ programs, the financial services they provide to households and the commercial sector, the green activities they promote, and the stakeholders they engage with. Table 2 contains more detail. 

All four Green Banks use pro-market PPP language and strategy to justify their financing model, albeit to varying degrees. We found, however, that there are pro-public lessons to be learned from these banks and the projects they finance. Following the case studies, we draw conclusions about the model and how it can be built on to create more pro-public public banks and forms of public–public partnerships.  

The targets of financing by the Green Banks are mainly individual households, nonprofits, small and medium-sized businesses, building owners, and sometimes government agencies. Funds support a variety of energy generation, efficiency and storage projects. Most of the Green Banks provided low-cost financing, sometimes below market rates, often widened eligibility for loans including reducing credit requirements, and can finance a large proportion of project costs often with no upfront costs (see Table 2 for details). Two promising lessons can be drawn: first, the importance of local and smaller-scale projects and, second, the importance of low-cost financing availability. 

First, the local and smaller scale focus of Green Banks can be very effective in providing financing directly to building owners, small to medium-sized businesses, developers, and households. At first glance, Green Banks seem to be a smaller-scale version of the mainstream PPP and blended finance practices which are prevalent in international organizations. Green Banks themselves use some of the same language of leveraging and attracting private finance. However, in practice they are qualitatively different from the mainstream models. The mainstream narratives around climate finance tend to focus on large-scale projects as being the solution to fighting climate change. Big investors want these projects to be PPPs to deliver new revenue streams. Smaller-scale projects are insufficient sources of revenue for mega-investors. Nevertheless, households and local communities are ground-zero when it comes to advancing green transitions. The local scale of Green Bank financing can create local income, jobs, and opportunities for community wealth building, vitality, and sustainability that are often overlooked in corporate-driven projects. Large-scale transformative green infrastructure is necessary to resolve the climate crisis, but the adaptability of renewable technologies, such as solar, and the importance of energy efficiencies, such as found in housing retrofits, means smaller-scale infrastructure plays an important role. 

Second, the emphasis on low-cost financing and on covering high proportions of capital costs is important. From the householder’s perspective, the high costs of greening your home can often be a deal breaker. Providing low-cost, potentially below market rate financing, on appropriate long-term conditions, and covering most capital investment costs, are pre-conditions for poorer communities to make the switch to renewables. Not only does making the transition to green technologies make sense from an economic standpoint, politically the availability of low-cost financing may also create support for expanding green infrastructure. That said, to decarbonize our societies as whole, we must also target renewable energy generation, energy efficiency, and energy storage as comprehensive and essential public infrastructure that needs public bodies to collaborate across scales and with active participation from community organizations and the workers running these sectors. Larger public development banks are critical for the delivery of essential public infrastructure.

These lessons are important. Nonetheless, there are areas in which most of these funds could be improved. The mandate commitments of these Green Banks limit their full potential. According to their mandates, these funds align themselves with the market-driven, private-sector solutions to the climate crisis. All funds emphasize their focus on ‘leveraging’ private sector financing and ‘expertise’, to varying degrees. Yet in practice the Green Banks tend to disproportionately support households and communities. Could a more intentional, pro-public and pro-community and pro-household mandate enhance their abilities to finance climate aligned development? The mainstream message employed by Green Bank officials downplays the achievements they have made and the potential for them to build toward an even more transformative model and democratic model. 

Table 2: Green Bank programs, financial services, supported practices, and stakeholders

This study – part of the Public Futures series – set out to study the contemporary practices of climate finance. It began by outlining the pressing issues of funding the green transition. It then explained how the current dominant practices emphasize using private sector financing, markets, and public–private partnerships, which have failed to deliver on decarbonization, let alone new infrastructure. It contrasted this with the purpose-oriented and public-focused approach of using public banks along with public–public partnerships. This was shown to be a viable alternative to the private sector model. Public banks along with PuPs and other public bodies can not only provide finance but can also strengthen local and national government capacity to achieve decarbonization. 

The remainder of the report evaluated whether the Green Bank model used in the United States offers a viable pathway for climate-aligned development finance. It’s clear that alone, this model cannot resolve the climate crisis, but this does not mean there are not seeds of practices to be built on. The emphasis on low-cost financing and the targeting of small and medium-sized projects that directly affect individual households and communities are good points of departure. Thinking further, funds that are administered collectively and are driven by purpose, not profit, can give power directly to communities to bolster the projects they need. Interweaving these practices in networks of public–public partnerships can redirect the entire productive chain toward collective purpose, rather than private profits. 

The broader lesson to be drawn from these case studies is that we must overcome the limits of private profiteering. Mitigating climate disaster, providing high quality and accessible services, and doing this collectively, cannot be achieved through practices designed to protect and attract private capital. The scale of investment required, and the urgency of the crisis, demand institutions that are stable, accountable, and oriented around collective needs. 

When focusing on a smaller scale, Green Banks made an outsized impact. However, the world needs massive investment to resolve the climate crisis and bring electricity to the millions across the world who still do not have it. Public institutions, in particular banks, when democratically governed and aligned with public goals, offer a stronger and more coherent foundation for climate finance. Along with public–public partnerships, these policy tools can help chart a path towards genuine sustainable development.