We have long been assured that contemporary global challenges — from poverty to climate change and health pandemics — will prompt global solutions based on international cooperation and adherence to the multilateral norms and rules fashioned at the end of the Second World War. These assurances carry little weight today with such cooperation sidelined by a United States intent on reasserting its hegemonic authority.

But in practice, the multilateral system has long failed to give developing countries the support they need to meet their development goals. For many countries, a combination of commodity dependence, labor market informality, constrained investment, and debt distress has hamstrung efforts to transform their economies. This situation has been made worse by inappropriate policy advice from international financial institutions, which has placed a premium on attracting private capital flows while constraining domestic resource mobilization and hollowing out state capacity.

While advanced countries may yet recognize their shared interest in and responsibility for a more inclusive, generous, and greener system of multilateral cooperation and coordination, developing countries cannot wait for them to come to their senses. The damage from climate shocks is already in the hundreds of billions of dollars annually, with worse to come. Nor should they expect market-based solutions — carbon pricing and blended finance — or technological breakthroughs like carbon capture and storage to deliver more sustainable development.

Rather, green structural transformation — through a state-coordinated, public-policy driven approach to reshaping and repurposing developing economies — offers a more hopeful way to align development and climate goals. While variation in initial conditions means the transformation process will differ across countries, policymakers everywhere face the same ‘triple movement’ — industrializing and diversifying their economies, increasing energy supply while decarbonizing their energy mix and adapting to damaging climate shocks.

This triple movement can only be advanced through a coordinated investment drive. This will include backing factories to process local materials, building supply chains for wind turbines, new storage facilities and transmission lines adapted to the vagaries of renewable energy sources, an electrified transportation system, and a massive infrastructure push to build robust adaptation and resilience systems to tackle water and heat stress, as well as rising sea levels.

With market forces often hostile to big structural shifts, the profit motive tied to quick returns makes private finance a costly option for many countries already mired in external debt. Low to marginal returns in public transportation and grid and adaptation infrastructure also make them unattractive for the private sector to be the first mover. Ambitious and coordinated national development strategies led by the public sector must be the starting point. In this regard, repurposing the East Asian experience for green structural transformation can offer lessons for other developing countries.

While that experience suggests managing the tensions between developmental aims, environmental goals, and competitive pressures will reflect local histories and political arrangements, the strategies followed will exhibit some shared features. They will need to mobilize domestic resources including savings, profits, taxes, and credit. Development banks will be key, supported by active central banks. Strategies should also integrate industrial policy with macro-financial, infrastructure, and social policy through revamped coordination, procurement, and planning mechanisms. They must also mitigate international pressures on the fiscal and policy space, including through the active management of capital inflows and outflows, foreign reserves, and exchange rates.

Key to success will be building strong ‘public-public partnerships’ which marry policy ambitions with the multiplicity of public financing mechanisms — Treasuries, Central Banks, development banks, sovereign wealth funds, pension funds, and state-owned enterprises — to boost investments in decarbonization and adaptation efforts. Public banks, with estimated assets worldwide of over US$90 trillion, will have a key role to play.

A new form of statecraft will be required to advance such strategies, drawing on successful institutional models already operating in the Global South. Countries can learn from China’s remarkable success in industrializing and diversifying its economy and energy mix, including its rapid and ongoing shift to renewable energy sources. China is also in a position to extend economic cooperation through increased trade, financial, investment, and technology ties. Still, closer integration must avoid the patterns of economic subordination derived from the biases and asymmetries of existing global rules and norms.

Possible models are not restricted to China. Brazil’s leading development bank, the Brazilian Development Bank, has a record of linking industrial policies and macro-financial measures with energy and climate-related lending. Morocco has recently adopted a low-carbon climate-resilient development strategy with a strong nexus linking renewable energy expansion with the development of a green hydrogen sector and backed by strong state support and a partnership with the European Union.

In Malaysia, financial regulators and the development bank, Bank Pembangunan Malaysia Berhad, have developed a climate finance innovation lab to overcome public-private financing hurdles. The lab provides a space for innovators to pitch to funders. Multi-agency initiatives have also been launched to improve the climate impact of industrial parks and agricultural practices.

In the absence of appropriate multilateral arrangements, cooperation between Global South nations can complement national transformation efforts. Regional trade and investment arrangements have already established closer ties across the Global South and Southern firms now have the technologies and know-how to extend green production possibilities.

Regional financial arrangements provide a financial safety net that is not solely dependent on the International Monetary Fund (IMF). Southern development banks, the Latin American Development Bank, and the New Development Bank are providing long-term finance outside the World Bank. Beyond their intrinsic value, the availability of Southern-led alternatives strengthens developing countries’ bargaining power in multilateral forums.