The Green Tau: issue 22

22nd October 2021

Green Finance

There is very little in this world that doesn’t somewhere along the line involve money – or as we might more politely phrase it, finance. Our response to the climate crisis is no exception. For whilst there are things we can do that don’t cost a single penny – like walking instead of taking the car, or turning down the thermostat, or not eating meat – there are many more things we need to do that do cost. We need to bring to a halt extraction of oil, coal and gas and instead create jobs and industries around  renewable energy, heat pumps, electrical vehicles and charging points. We need to invest in public transport and reduce considerable the aviation industry – and we need to invest in retraining and creating green jobs. We need to shift the emphasis of agriculture from animal to arable farming. We need to restore and expand the rewilding of land and seas so they can become larger,  more effective carbon sinks. We need to insulate our homes, offices, public buildings – even places of worship. We need improve provision for floods, droughts, wild fires, storms, heat waves and cold snaps, so that people, properties and ecosystems are protected. The list goes on and so does the need for finance.

However much these measures may cost, we must keep in mind what would be the cost of doing nothing: ie the cost of even more infrastructure to cope with ever increasing temperatures, and extreme weather conditions; the cost of relocating homes, businesses and whole communities as sea levels rise; the rising cost of food as all important pollinating and pest destroying insects are lost; the rising cost of food and water as water shortages rise; the loss of life from extreme weather events and the rising number of excess deaths from heat waves and cold snaps; the growing need to relocate whole communities as rising temperatures make large areas of land uninhabitable. 

And on the other hand we should keep in mind all the positive spin offs from investing in a greener world: better health as people walk and cycle more, eat less meat and dairy products, enjoy more green spaces that enhance mental well being, live in warmer, dryer homes, breathe less polluted air. 

So what is happening about finance to tackle the climate crisis? Here are some examples and policy statements for the global to the individual level.

*UN Climate Finance: ‘The Convention, the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable. This recognises that the contribution of countries to climate change and their capacity to prevent it and cope with its consequences vary enormously.’

‘According to October 2019 data from the World Bank , the world will need to make significant investment in infrastructure over the next 15 years –around US$90 trillion by 2030.  But it can recoup those investments. Transitioning to a green economy, it found, can unlock new economic opportunities and jobs. An investment of US$1, on average, yields US$4 in benefits.

‘In addition to reducing emissions, making infrastructure more resilient avoids costly repairs and minimises the wide-ranging consequences of natural disasters on the livelihoods and well-being of people, particularly the most vulnerable, as well as on businesses and economies.  And a shift  to low-carbon, resilient economies could create over 65 million net new jobs globally out to 2030.

‘Reaching net zero requires making good on the $100 billion annual climate finance commitment’ – at the time of writing it is hoped that developed nations will make good on their promise to supply this funding.  https://unfccc.int/topics/climate-finance/the-big-picture/introduction-to-climate-finance

• International Monetary Fund: ‘Long term institutional investors can help with rebalancing and redistributing of climate related risks and maintaining financial stability. Hedging instruments (e.g., catastrophe bonds, indexed insurance) help insure against increasing natural disaster risk, and other financial instruments (e.g., green stock indices, green bonds, voluntary de-carbonisation initiatives) can help re-allocate investment to “green” sectors.’ https://www.imf.org/en/Topics/climate-change/green-finance

* World Economic Forum: Green finance is blossoming. Globally, the green bond market could be worth $2.36 trillion by 2023. It is regarded as a way of meeting the needs of environmentalism and capitalism simultaneously – but what is green finance and how does it work? Typical projects that fall under the green finance umbrella include:

• Renewable energy and energy efficiency
• Pollution prevention and control
• Biodiversity conservation
• Circular economy initiatives
• Sustainable use of natural resources and land

https://www.weforum.org/agenda/2020/11/what-is-green-finance/

* The Bank of England: ‘Climate change affects our planet, our economy and our financial system. As such, climate change is relevant to the Bank of England’s central mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.’

* All banks are likely to offer customers finances for green projects subject to their normal risks assessment. However some banks – green/ ethical banks – make finance such projects the main stay of their work and at the same time consciously choose not to invest in projects that are harmful to the environment. For example Triodos Bank claims to be ‘one of the most sustainable banks in the world. We make money work for positive social, environmental and cultural change.’

Good with Money notes that: ‘channelling money into companies and initiatives that solve big global problems may be a win-win scenario. For instance, well-run businesses fighting climate change are benefitting from public and private commitments to clean infrastructure. Some are even starting to outperform their badly-managed, polluting rivals, which means bigger profits for investors to put towards meaningful long-term goals.’ https://good-with-money.com/wp-content/uploads/2021/08/The-Good-Guide-to-First-Time-Investing-FINAL.pdf

*Pension providers, insurance companies, mortgage providers, investment and savings companies, all invest money for the benefit of their customers.  As consumers we can ask whether these funds are invested so as to benefit the environment or whether they are investing in companies that are damaging the environment, such as those in the fossil fuel industries. 

Make My Money Matter says: ‘Your pension is powerful. There’s £2.6 trillion in UK pensions – and that’s your money. But it’s being invested on your behalf, without your say. That means your hard-earned savings are likely driving deforestation and funding fossil fuels. As a result, your money has a carbon footprint – just like you.We’ve looked at how big that footprint is, and the answer is pretty scary. The carbon footprint of the average pension is 26 tonnes…’ https://makemymoneymatter.co.uk/21x/

* Personal spending: we, as consumers, can be seen as investors. When we choose what to spend our money on, we are expressing our preference, our support for that product or service, that market or industry. Whether we are buying petrol or a bus ticket, whether we are buying an air ticket or train ticket, whether we are buying locally grown apples or imported grapes, dairy milk or oat milk, we are influencing the way money will be invested and its impact on our environment.