Opinion article

How the COVID-19 recovery is driving a green growth future

Pollination Senior Partner and former Australian Ambassador for the Environment, Patrick Suckling, unpacks the global movement towards green investment and shows how the COVID-19 economic recovery presents an opportunity to reap the “double-dividend” of investing in growth and jobs and transitioning to more climate-resilient economies.

Green investment is no longer a future trend – it is becoming mainstream, now. The structural shift in the global economy as the world transitions to a net-zero emissions, climate-resilient future is accelerating. With a new US administration committed to putting climate transition at the heart of its agenda, more than 60 per cent of the global economy is now moving toward net-zero by 2050.   

The climate transition presents unprecedented business risks and opportunities. As former Bank of England Governor Mark Carney put it back in 2019, companies that that fail to adjust to this new reality will fail to exist.  

CEO of investment powerhouse BlackRock, Larry Fink, was equally stark in his recent annual newsletter to clients, where he underlined what he calls a “tectonic shift” in capital to sustainable assets. Climate transition and the broader sustainability crisis mean we can no longer continue with business as usual, but green investments are now also generating higher returns. Fink noted that during 2020, 81 per cent of a globally representative selection of sustainable indexes outperformed their parent benchmarks. On top of that, from January to November 2020, mutual funds and ETFs globally invested $288 billion in sustainable products – an astonishing 96 per cent increase over 2019.

With $9 trillion under management, Blackrock moves the market. The firm will now explicitly ask all companies to disclose a business plan aligned with limiting global warming to well below two degrees, consistent with achieving net-zero global greenhouse emissions by 2050. Other asset managers and financial institutions are heading in the same direction, with more than a third of global banking committed to the Paris Agreement goals, and Australia’s asset managers and super funds increasingly committing to Paris-aligned investing.

Global economic recovery from COVID-19 is a significant opportunity to further build this momentum. Governments, business and communities around the world are increasingly focussed on reaping the double dividend of both investing in growth and jobs and in the transition to net-zero, more climate-resilient economies. Spending decisions by governments now will shape our economic future for decades to come; they cannot be locking in high-emissions investments that we know will hurt communities and economies everywhere over those future decades.

Climate-related investments in many cases offer the best prospects for economic recovery.   Researchers at the Oxford Smith School of Enterprise and the Environment recently assessed different government support measures, analysing their speed of implementation, economic impact and social-welfare outcomes. They identified five types of stimulus measures as particularly effective for economic recovery: clean-infrastructure investment; building efficiency retrofits; investing in the land sector; green training and development; and clean R&D investment.

McKinsey recently found that government spending on renewable energy technology creates five more jobs per million dollars than spending on fossil fuels. Decarbonisation investments often provide stronger economic growth prospects, through higher-longer term productivity. The extraordinary growth, falling costs and employment associated with renewable energy, battery storage and electric vehicles are leading examples of this.

Notably, the IMF is emphasising that by combining climate mitigation with growth and distribution strategies, we will see stronger future growth. It points out that broadly-adopted, growth-friendly mitigation packages could raise global activity through investment in green infrastructure over the near term as economies transition toward cleaner technologies. The IMF also underlines that relative to unchanged polices, such an approach would significantly boost incomes in the second half of the century, by avoiding damages and catastrophic risks from climate change.

The EU is already leading by example with its €750 billion stimulus package that will invest heavily in energy efficiency, bolstering renewable energy, accelerating hydrogen technology, rolling out clean transport, improving agricultural production, water and waste management, and constructing more sustainable homes and buildings.

President Biden is set to follow suit, with a proposed $1 trillion green package squarely focused on green economic recovery and further accelerating climate transition. As he puts it, when he thinks of climate change he thinks of jobs, jobs, jobs. Canada and South Korea are also leading with promising policy.  

Nonetheless, significant challenges remain to ensuring this direction of travel prevails. Vivid Economics’ “Greenness of Stimulus Index” shows governments have announced $12.7 trillion in stimulus around the world, and only $3.7 trillion has gone directly into sectors that have a large and lasting impact on carbon emissions and nature. That will improve with the new US administration, but many countries need to shift gear, including Australia and Japan and key emerging economies such as China, India, Indonesia and Brazil.

As ever, climate transition remains a work in progress with hard yards ahead, but the trends are increasingly favourable. Larry Fink and others are showing how the economics is changing, and solar and wind technologies are now the cheapest new energy built around the world – producing the cheapest electricity ever seen. As emissions reductions increasingly decouple from growth – the UK has grown its economy by more than 70 per cent while reducing emissions by more than 40 per cent since 1990 – the better bet will be green. The smart money is already headed that way, providing bankable grounds for optimism.

About the authors

Patrick Suckling

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Patrick Suckling is Senior Partner at leading climate change advisory and investment firm Pollination and a former Australian Ambassador for the Environment. He led international policy for two Australian Prime Ministers, including on climate change and a successful G20 response to the Global Financial Crisis. As former Ambassador for the Environment he led for Australia on Paris Agreement negotiations, strategy for Australia’s $1 billion climate finance commitment, and development of climate cooperation with key countries such as China, India and Japan. 

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