Let’s talk money: What will it take to save our planet?
Ariana Mozafari, OECD Environment Directorate
That wise mantra that knowledge is power has clearly never stepped inside a business meeting. In this day and age, money is power. Money builds hospitals and roads and civilisations. The OECD can work its hardest to raise awareness on the truths of climate change, but the world won’t see developments in green technology and infrastructure unless we have eager investors backing up investment and research and development in low-carbon technologies.
In the past, many have claimed that environmental protection and green projects are a high-risk investment that can hinder economic development. Low returns and low confidence in green growth and high-capital needs in low-carbon infrastructure projects make investing in environmentally-friendly technologies a seemingly unprofitable business. Less-developed nations have even fewer incentives to invest: as they try to climb out of the poverty rut, how can they possibly spare financial resources to focus on preserving the environment?
Contrary to popular belief, climate change and economic development don’t have to be two opposing policies competing for governments’ attention. This week’s second annual Green Investment Financing Forum at the OECD showed that huge investors that have traditionally invested in fossil fuels and high-emissions activities are, in fact, the best financial resources to save our planet from climate disaster.
Like the Porter Hypothesis says, climate change action and economic growth can feed off each other. The Green Investment Financing Forum gathered senior representatives from investment firms and institutional investors from around the world such as Goldman Sachs and Aviva. The GIFF proposed suggestions to achieve a balanced future global economy, which should ideally be centered on an environmentally-conscious, competitive and productive investment field that delivers the risk-adjusted returns that fiduciaries need. The discussions included:
- Providing greater transparency in risk evaluation for investing in green projects. Green growth needs to become a predictable engine for business and the economy. Greater transparency means greater confidence in the investment project, which will hopefully facilitate more long-term investments in green infrastructure.
- Driving up demand for investing in green growth. There should be a competitive and open market for providing environmentally-conscious products and services. There needs to be a shift to a customer-focused approach to drive up competition.
- Creating more financial literacy, so that politicians can create policies that have positive incentives for businesses and mainstream investors can understand how to invest in the sector. We need to know what businesses expect in return for their investments, and we need to create efficient and effective incentives and solutions that benefit them directly.
- Improving data collection and disclosure for banks, investors, and businesses. We need to know how companies view green growth and the carbon content of their businesses and assets if we’re going to attract more investors towards green growth. Governments and international bodies should be able to track past green investments and how they perform.
Professor Daniel Esty, Hillhouse Professor of Environmental Law and Policy at Yale University, also argued that finding capital is not the issue in furthering green technology—in fact, financial resources are abundant. According to Esty and the Connecticut Green Bank, the world needs more innovative projects for green growth.
Esty also urged governments to steer private capital in the direction of low-carbon investment, with a three-step plan outlined below. The current actions governments are taking, he said, are not enough to save our planet from climate change.
- Governments need to provide clarity and normalize the marketplace. Leaders need to change the image of green investments to prove that these environmentally-friendly projects will not be “high-risk” financial ventures.
- Governments should minimize the soft costs for these green projects. Examples of these include mitigating building and permit costs to encourage green growth.
- Governments must also frame a new idea of what is “clean energy.” Leaders should not be pushing renewable energy standards that allow burning “biomass” (aka firewood), for example, to slide by as “clean energy reform.”
And, overall, governments should be subsidising industries who are the “winners” in green development and stepping away from subsidising fossil fuels, taking the golden opportunity to do so in today’s low-interest economy. Just take a look at Indonesia’s government if you need some low-carbon inspiration. They seized the opportunity to reform fossil fuel subsidies and put the money towards better use to help the poor and reduce carbon emissions.
The road to climate change is a long one, and yet the need for policymakers to shift archaic policies towards greener growth has never been more critical. As Nobel Peace Prize winner Al Gore commented on the nature of drastic policy changes throughout history: “After the last no, comes a yes.”
For more policy suggestions that facilitate low-carbon investment, check out the OECD’s policy highlights on Investment in Clean Energy Infrastructure and the OECD’s report for the G20 on Mapping Channels to Mobilise Institutional Investment in Sustainable Energy.