Q&A: An Interview with Lars Grotewold, Director at Stiftung Mercator
Welcome Lars, to begin— could you please give our readers a brief introduction?
Absolutely. I’m Lars Grotewold, Climate Action Director at Stiftung Mercator, one of Germany’s largest philanthropic foundations and a major funder of climate initiatives.
How long have you partnered with Climate Group?
We’ve been partnering with the Climate Group for 10 years, and Under2 has been part of that journey from early on. It’s a great platform for scaling the kind of subnational solutions we’re passionate about—both nationally and internationally.
What motivated your decision to support the Next Generation Budgets project?
First, the project takes a systems-based approach by involving subnational governments. We believe the subnational level is essential for implementing climate action and pushing for more ambitious and effective policies.
Second, the focus on green budgeting is central. Subnational governments account for over 50% of environmental and climate spending globally. They have tremendous potential to unlock both public and private finance—through green procurement, targeted incentives, or regulatory frameworks that align business and government action. These governments offer a flexible environment to test innovative policy approaches that can later be scaled.
Third, it’s implemented by the Climate Group, with whom we’ve built a strong, trusted partnership over the last decade. We've seen what they can deliver.
Can you tell us about a few of the projects you’ve funded?
Sure. We began in 2015 with the Energy Transition Platform, which was somewhat similar in approach to Next Generation Budgets but focused on energy transition in industrialised regions. That was followed by the Industry Transition Platform. Both projects were collaborative, peer-learning initiatives supported by the Climate Group.
As Under2 marks its 10th anniversary, what stands out to you?
I’d say it has achieved massive mobilisation at the subnational level. The coalition now includes close to 200 governments representing more than 1.5 billion people and half the global economy. That’s a huge share of global emissions and an enormous opportunity to drive real climate action.
It has also contributed significantly to accountability—through tools like the Under2 Ambition Tracker, which standardises data and reports on progress toward Paris-aligned goals. It has fostered peer-to-peer learning and built capacity at the state and regional level—goals we share with the Next Generation Budgets project.
Given the growing challenges facing the global climate agenda, especially in places like the U.S., subnational action is often where real progress is still possible. The coalition has become a source of creative power for pragmatic, ambitious climate action.
That’s a great phrase— “a source of creative power for climate action.” On that note, there’s growing global attention on the need to redirect financial flows. Why is it so critical that funding reaches subnational governments?
The transformation to climate neutrality, we’re all striving for has a high capex. We need a lot of investment to go into the right technologies, the right infrastructure, the right processes, and so on.
The money is out there—it’s about directing it into the right channels.
Public funds must be used strategically to unlock much larger pools of private investment. That means creating the right environment—transparent plans, strong governance, and incentives that de-risk investment for companies committed to climate goals.
Subnational governments are uniquely placed for this. They’re closer to local businesses and communities and can design financial strategies that reflect local needs. They’re also more agile when it comes to testing new approaches. But many regional governments are overwhelmed with day-to-day responsibilities and eager for strategic learning from peers—exactly what Next Generation Budgets aims to provide.
How important is peer-to-peer learning to achieving net-zero goals?
It’s absolutely essential. This transition is unprecedented—there’s no historical comparison in terms of scale, urgency, or complexity.
No single government, sector, or actor can tackle this alone. We need to harness knowledge from across geographies and sectors.
And I think that’s where civil society plays a vital role—by creating platforms that enable these kinds of discourses and learning processes, and by helping to infuse the best available knowledge into decision-making. That’s also what I’ve seen consistently in my 15 years in the philanthropy space: it’s where we, as philanthropic funders, can add real value—often by enabling actors like the Climate Group to build and sustain these platforms.
Our independence from political and market forces makes us a trusted partner for this kind of work.
Do you have an example of a success story from this work?
I think back to 2015, when we launched our first project with Climate Group, the Energy Transition Platform (ETP). I remember attending Climate Week NYC and speaking about the project. So we’re really celebrating a decade of successful and trustful partnership.
What stands out for me in this partnership with Climate Group is the desire and ability of the organisation to constantly refine, advance and improve their theories of change in their approaches.
So take for example, the ETP project, which focussed very much on the peer-to- peer learning, Next Generation Budgets is similar in the general approach, but focusses much more on implementation and on mainstreaming a green budgeting approach into different parts of governments. There’s another very important factor for a funder and its reliability. Climate Group is a very reliable partner.
One of my most memorable encounters have been with North Rhine-Westphalia—a German state responsible for a third of Germany’s emissions. In private conversations, they’ve told me how valuable these international partnerships are for making the internal case for stronger climate action. That kind of feedback is really powerful.
In a recent interview, you mentioned that Stiftung Mercator is increasing its focus on subnational and local policy implementation. Is this part of the rationale behind investing in Next Generation Budgets?
In our portfolio, we always aim to strike a balance between what needs to happen at the national and European regulatory levels, and what we need to support on the implementation side at the local and regional levels. Of course, this isn’t a black-and-white distinction—regulation also happens at the regional level.
That said, subnational actors, such as states and regions, play a crucial role in driving innovative policy solutions. Thanks to their closer proximity to citizens and the local economy, they are often able to pilot and implement forward-looking approaches more quickly than national governments. They only need to consider their specific local environment, rather than an entire nation with widely varying contexts. These innovations, in turn, can act as moderators for broader national adoption, helping to create a bottom-up dynamic for policy change.
Now, for funders with a systemic perspective like Stiftung Mercator, there’s always a tension between striving for large-scale systemic impacts and working at the more micro, local level. So, whenever we engage at the regional or local level, we always look for mechanisms to scale what has been learned, to share it across more regions than those directly involved, and to bring this subnational knowledge back into national policy discussions.
And that’s exactly what the Climate Group has perfected over the years through the Under2 Coalition, which actively supports and enables peer-to-peer exchange.
And what do you hope participating governments will achieve through Next Generation Budgets?
First, we hope they gain the skills and confidence to “green” their budgets—recognising the impact they can have and knowing how to act on it.
Second, we hope they develop stronger strategies to attract private investment, because public funds alone won’t be enough.
Third, and just as important, we want to see these success stories shared widely. We are in desperate need of good news these days. We need to hear how ambitious climate action has improved the lives of the people on the ground. And if that project can contribute to that, I think that's a big impact.