Policymakers must put the climate emergency at the heart of their COVID-19 stimulus packages.
The COVID-19 tragedy has made clear that we must be better prepared for emergencies. Governments are understandably focusing on the present crisis, but they must heed the dangers of reacting too late to threats and remember one of the gravest facing the world – the climate emergency.
As Kristalina Georgieva, managing director of the International Monetary Fund (IMF), pointed out during her opening remarks at the recent Petersberg Climate Dialogue, “If this recovery is to be sustainable – if our world is to become more resilient – we must do everything in our power to promote a green recovery.”
While some leaders have focused on ways to get their economies back on their feet at all costs, others (such as in Canada, France, and Germany) are thinking of ways in which we can actually ‘build back better’.
So, how can policymakers make their recovery strategies ‘green’? Well, with so much fiscal firepower at their disposal, they can do quite a lot. Here are a few ideas:
• Scrap fossil fuel subsides;
• Include mandatory net-zero commitments and Task Force on Climate-related Financial Disclosures (TCFD) reporting in all loan agreements to companies;
• Reallocate budgets from transport to high-speed broadband and 5G (we’re going to need it as working patterns will change);
• Explore carbon pricing again;
• Invest in technologies like carbon capture and storage;
• Retrain workers in ‘green’ industries;
• Set clear climate resilience requirements for infrastructure investment;
• Encourage energy efficiency in buildings;
• Promote and expand walking, cycling, and the use of public transport; and
• Install expansive electric-vehicle charging networks.
Some countries are already taking action. In mid-May, Canada launched its ‘Large Employer Emergency Financing Facility’ (LEEFF). The recipients of the LEEFF will be required to publish annual climate-related disclosure reports consistent with the Financial Stability Board’s TCFD, including how future operations will support environmental sustainability and national climate goals. France is also looking at measures to halve overall emissions from domestic flights and has joined Germany in calling for a €500 billion EU Recovery Fund that supports a green transition. Très bien Monsieur Trudeau, Monsieur Macron, et Frau Merkel!
Other governments around the world don’t lack for guidance on a green recovery, either. The IMF’s Fiscal Affairs Department has published a broad guidance paper for governments that touches on three high-level areas:
1) Use public support wisely (commitments by companies to reduce carbon emissions if they receive public funds);
2) Promote green finance (new forms of sustainable finance, better climate disclosures, and improved ways to price climate risk);
3) Put the right price on carbon (to minimise the misallocation of investment and much needed revenue to support the recovery).
We’re also not starting from scratch here. Take the work that has been happening in Europe, for example. The European Commission has been making fantastic progress on sustainable finance with the launch of the Green Deal towards the end of last year. The long-awaited taxonomy report has now been released (mitigation and adaptation for now) and progress on sustainability disclosures and non-financial reporting continues.
To this end, LGIM has joined an informal ‘green recovery alliance’ calling for the Green Deal to be placed at the centre of the EU’s post-COVID recovery package. We will send consistent messages across the globe, calling on governments to produce green recovery packages as a matter of urgency.
In particular, we would urge the UK government’s COVID-19 recovery strategy to go much further in addressing climate change. As it stands, the plan is in stark contrast to the UK’s legislative net-zero commitment and hosting of COP26.
The decisions policymakers take now will have implications for many years to come. So, let’s be brave, let’s be bold, and let’s not bounce back but bounce forward. We can put ‘green’ at the heart of the coronavirus stimulus package.