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Opinion

Green stimulus demands political leadership

A global green recovery is still a distant ambition, but leadership across sectors is slowly coming together.

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“The Greenness of Stimulus Index (GSI) shows that stimulus to date will have a net negative environmental impact in 16 of the G20 countries and economies.”

Among the many announcements and rallying speeches given this week during the City of London’s Green Horizon Summit, it was this statistic that stuck with me. For all the rhetoric of ‘build back better’, our global recovery at present is far from green.

The GSI is the work of Vivid Economics, which has been tracking economic responses to Covid-19.

These stimulus packages could make or break our global climate ambitions

Its latest report shows that only France, the UK, Spain and Germany have environmentally net positive stimulus packages. These packages include criteria such as green strings attached to corporate bailouts, green research-and-development subsidies, or loans and grants specific to green investments or nature-based solutions.

The worst offenders on this front are Turkey, Saudi Arabia and China, which have introduced some green stimulus, but nowhere near enough to compensate for their negative environmental contributions.

Among developed countries, the US comes last.

For all the discussion of green finance, it is clear that only a handful of countries are committed to the climate agenda – whether for altruistic reasons or economic ones.

The UK, for example, took dramatic steps forward this week with several key announcements.

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Rishi Sunak, the UK's Chancellor of the Exchequer

Chancellor of the Exchequer Rishi Sunak revealed that the government would be issuing a green gilt next year and creating a ‘green curve’.

He also said the UK would be developing a green taxonomy using the EU taxonomy as a baseline, in addition to joining New Zealand by mandating reporting on climate impact.

Bank of England governor Andrew Bailey confirmed the new launch date of June 2021 for climate stress tests, and Nikhil Rathi, CEO of the Financial Conduct Authority, said it would be introducing rules from January 1 requiring “premium-listed companies to make better disclosures about how climate change affects their business, consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)”.

These commitments to climate and climate finance make sense for the UK, not least because, as it leaves the EU, it needs to establish global leadership and – as the host of UN climate change conference COP26 next year – any climate efforts will be amplified.

There has been an ongoing debate about what is most effective in moving us to a global green economy: is it government policy or is it private-sector action? Is it even down to individuals as voters and consumers? The answer is, of course, all of the above, but the tone set at the top of our political leadership is essential.

US election

There was a tangible sense of positivity and relief at the summit when Joe Biden was announced US president-elect. There is now optimism that things will start to change.

Mary Schapiro, Bloomberg’s vice-chair of global public policy and special adviser, went as far to say that the difference now for the climate after the US election “is extraordinary”.

She added that a Biden administration would only be “a positive for the future of financial reporting on climate risk”.

As to whether or not the US rejoins/stays in the Paris Agreement, that may depend on Senate approval, but at least we know the 46th US president will be a team player when it comes to the global climate crisis.

For the trillions of dollars needed to achieve science-based goals of halving emissions this decade, we require these stimulus packages to be more supportive and more catalysing.

It’s no coincidence that 221 organizations in the UK have signed up to TCFD, or that the French banks lead in green bond underwriting, and that Paris and London are now seen as sparring for the title of world’s green finance hub, given their governments’ commitments.

While a global green recovery looks optimistic at best right now, it feel like there has been a shift in the understanding that green finance needs the support of everyone and that pressure needs to come from all sides.

Seeing HSBC’s Noel Quinn, BNP Paribas’s Jean-Laurent Bonnafé and BlackRock’s Larry Fink speaking at the summit along with UN Secretary-General António Guterres and president of the European Central Bank Christine LaGarde, or Mark Carney, Bill Gates, Michael Bloomberg or HRH the Prince of Wales, is something not to be underestimated.

Pressure is building. It has to – these stimulus packages could make or break our global climate ambitions.

It is 12 months until COP26, and governments that do not start embedding green policies into stimulus packages need to have their feet held to the fire, especially given their commitments to the Paris Agreement. Their movements are being tracked.

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