Governments must not allow the Covid-19 crisis to shift their priorities away from climate change mitigation, as experts warn that only a small proportion of fiscal stimulus announced in response to the pandemic can be considered “green”
In its Green Weekly Insight report, the Institute of International Finance (IIF) warned that rising debt levels as a result of the coronavirus pandemic could hinder investment in climate change mitigation and UN Sustainable Development Goals (SDGs).
The report, Will Covid-19 reinvigorate the ESG agenda?, highlights some of the “green” packages announced by global governments, but notes that less than 1% of the total $11trn in approved global fiscal stimulus can be considered “green” (a total of $84bn). And further investment in “green” initiatives could be put on the backburner as government’s are forced to increase stimulus packages.
“With recovery still tentative and patchy, additional support will likely be needed,” the IIF said.
“Without aggressive action to create new jobs, another surge in borrowing needs could further undermine public and private sector balance sheets and could lessen the capacity of firms and sovereigns to respond to future shocks.
“Such constraints could hinder the investment necessary to tackle climate change and to achieve UN SDGs.”
The UK government is already failing its commitment to “build back better”, according to a new report from campaign group Positive Money, entitled The Covid Corporate Financing Facility: Where are the conditions for the billion £ bailouts? According to this report, the Bank of England is financing polluters through its Covid Corporate Financing Facility (CCFF) by offering financial aid to companies without any environmental conditions attached.
And according to a poll conducted by YouGov on behalf of Positive Money, the British public is not happy with this. Nearly two thirds of respondents said large corporations shouldn’t be given financial aid without certain environmental and social conditions, such as cutting carbon emissions and protecting workers’ jobs, while only 5% believe there shouldn’t be any conditions attached.
Gemma Woodward, director of responsible investment at Quilter Cheviot and editorial panellist for ESG Clarity, agreed the UK government and financial sector must do more to channel capital investment into the green economy.
“In the UK, as the Prime Minister evokes the spirit of Roosevelt’s new deal on announcing a multi-billion pound infrastructure spending plan, it is important he remembers Kennedy’s famous quip that the time to repair the roof is when the sun is shining,” she said.
“The closer and closer we get to 2050, the more it will rain, and the harder it becomes for governments to fix the roof. Initiatives such as London Climate Action week are critical for ensuring that action on Covid does not replace action on the climate and that both governments and businesses continue to frame their response to the crisis in environmental terms.”
One suggestion she makes is that the HM Treasury could introduce new green government bonds to drive capital into green infrastructure projects.
Europe steps up
Europe, on the other hand, is at the forefront of driving capital into green finance. The largest “green” fiscal package proposed so far is the European Commission’s €750bn (£685.3bn) Next General EU recovery proposal. However, this is yet to be approved and is subject to European Council negotiations in July.
Germany is also set to contribute €130bn to the green effort, in a support programme that omits financial aid for combustion-engine vehicles, while directing nearly €50bn to electric and hybrid vehicles, renewable energy, public transport and to reducing green surcharges on consumers’ power bills. South Korea, France, Denmark and Lithuania have also each announced their own smaller but still significant “green” packages.
Overall, if all of these are approved the total stimulus with green, sustainability or climate objectives will be an estimated $931bn (£744bn), accounting for 6% of total fiscal measures proposed so far.
However, IIF warns that the bulk of the broader stimulus measures announced across the world are directed towards high-carbon sectors, which will “lock in” emissions over the coming decades and offset much of the improvements achieved through “green” stimulus packages.
Yet the coronavirus crisis provides governments across the world with an opportunity to promote “climate-resilient, carbon-neutral, and resource-efficient investment” and now is the time to use it.
It is not just carbon emission reductions that can be achieved through investment in these areas, either, with the report highlighting the opportunity to reduce job loss by investing in green energy.
For example, the report states that six million jobs have been lost already or are at risk in energy-related sectors as a result of the pandemic, and the expected 20% drop in investment in this sector in 2020 means many of these jobs are lost forever.
However, a report by the IEA shows than an investment of $1trn (£814bn) in green energy every year for three years could create nearly nine million new jobs, while also reducing global carbon emissions by some 15% from 2019 levels.
IIF said: “The Covid-19 crisis represents a unique opportunity for meaningful change in how we consume, save, invest and borrow.
“With strong political commitment, this shift could help bridge the gap between economic and environmental goals and bolster inclusive growth.”