instance, africa is abundant with renewable energy sources like solar, wind and hydro – ideal conditions for producing green hydrogen. this new partnership could be a win - win situation for both continents. it is a good starting point for germany to diversify. to tap this potential, stepping up investments in renewables is essential – in europe and elsewhere. 3 key role for the financial sector in financing the transition renewables have gained further momentum amid the energy crisis. in its recent world energy outlook, the international energy agency ( iea ( international energy agency ) ) said that the energy crisis has the potential to speed up the global energy transition. the iea ( international energy agency ) expects global investment in clean energies to rise to about 2 trillion us ( united states ) dollars per year by the end of the decade – that ’ s an increase of 50 percent compared to today. however, to limit global warming to 1. 5 degrees by 2050, twice that amount would be needed. [ 14 ] to meet these massive global investment needs it will be particularly important to mobilise private capital. in general, the right funding mix will be essential. banks alone cannot provide the necessary capital, partly because of the high capital requirements. i have just talked about new business partners. in this regard, it is important to note that developing economies and emerging markets are struggling to mobilise private climate financing. according to the imf ( international monetary fund ), investors often consider investments in climate projects in these countries to be too risky. the public and the private sector have to work hand in hand to overcome these challenges and to scale up green finance. the imf ( international monetary fund ) recently mapped out several ways for the public sector to take on parts of the investment risk through blended finance. one avenue for the public sector could be to take an equity position in climate projects. [ 16 ] this would make these projects more attractive to private investors. multilateral development banks – like the european investment bank – will play a major role in blending public and private finance to fund green energy projects. [ 17 ] in a nutshell : establishing mutually beneficial partnerships between europe and developing economies and emerging markets is an important factor for the green transition. last week, at the un ( united nations ) climate change conference cop27 ( conference of the parties ), the european investment fund, europe ’ s largest provider of risk finance, committed nearly 250 million euro with five equity funds to back up to 2. 5 billion euro of climate

be addressed. to improve the comparability of the methods used to calculate the capital requirements, the basel committee is aiming to curtail banks ’ leeway in weighting risk. for example, it is hard to assess the probability of default for low - default portfolios which include exposures to sovereigns, large companies or banks because – as the name suggests – the respective credit events are very rare. to some extent, the calculation of regulatory parameters for such low - default portfolios falls under what is known as the “ turkey illusion ” : imagine you are a turkey. every day you are approached by a man who feeds you. what kind of mental model of what happens when he appears do you think you ’ ll build up? however, thanksgiving is coming … measures under consideration to reduce the leeway for banks using an internal - ratings based approach include the implementation of floors based on the standardised approach, restrictions on using internal estimates of certain parameters for risk calculation purposes, and the exclusion of certain asset types from the model - based approach. efforts are also underway to make the standardised approach more risk - sensitive. however, it should be noted that using different methods to calculate risk - weighted assets is not a problem per se. to some extent, deviations are acceptable and reasonable ; otherwise we would ultimately be calling into question the very rationale of the internal models - based approach. bis central bankers ’ speeches 3. beyond basel iii when basel iii is fully implemented, regulatory capital requirements will be significantly higher and tougher than under basel ii, and the financial system will be more stable than before. a typical credit institution will have to achieve a capital ratio of 8 % plus various buffers. but will that be enough? to give a profound answer to this question, we would first need to have an idea of what would be an optimal, or at least an adequate, capital ratio. academic research on this subject is not very broad. however, a recent study by several central bank economists found that a capital ratio of around 11 % would be a reasonable figure. 2 that number exceeds the basel iii minimum requirement but falls well short of “ more radical proposals ”. of course, there is a trade - off between the benefits and costs of higher capital requirements which lies at the heart of the optimisation problem in the study i just mentioned. on the one hand, higher capital requirements reduce bank leveraging, the risk of bank failures and the implicit subsidies given to banks on account of deposit insurance