If you’ve ever pondered why some humanitarian causes should score more than others, the message from the United Kingdom has finally arrived.
Environment Secretary Michael Gove has just announced that the government plans to offer large-scale funding to national and global banks that commit to greater ambition for climate change mitigation measures. The plan? To encourage financial institutions to contribute to carbon reduction and clean energy projects that will help the world work toward a more sustainable economy. The government promises to tap into its $50 billion in Global Investment Banking revenues and reduce its borrowing costs for clean energy projects that will prove most commercially viable.
Will it work? Our global bank colleagues are certainly encouraging: Just this week, JPMorgan Chase and Bank of America partnered up with the Clinton Climate Initiative, a non-profit started by former U.S. President Bill Clinton, to boost clean-energy financing. Clinton stated the initiative’s goals in this encouraging way:
The global financial institutions who pursue innovative climate-friendly products and finance development through financing will play a critical role in building a bright future for businesses and people around the world….Achieving long-term economic benefits in energy-efficient ways and in the management of climate change could boost total global GDP by $1.5 trillion by 2030, equivalent to the size of India’s economy. A fully-capitalized GICG climate finance channel could kick in up to $34 billion in financing across all investment categories.
This is just the latest push from the United Kingdom’s campaign to push financial institutions to a cleaner, less global-warming-causing path. In March, the country announced plans to support alternatives to coal-fired power plants, a welcome (and necessary) about-face for the Conservative government. Climate Change Minister Claire Perry touted the move as one that was “entirely possible with support from banks and international development agencies.” Just a few days ago, another report found that a European-based partnership could reduce energy costs by about 12.6 percent (on average) as soon as the 2030s for European businesses.
So yes, progress continues. But it needs to be nearly immediate. The World Bank and International Monetary Fund published a report recently outlining that “measurable progress in global energy-efficiency policies and finance is essential to achieve and sustain mid-century global economic growth,” and one that would be remarkably less pollution-friendly. In fact, most of the suggested measures at the top of the World Bank’s list — from insulating buildings to investing in clean-diesel vehicles to helping rural communities adopt more sustainable models of agriculture — have been happening around the world for years. Why the lag?
What the World Bank and IMF recommend is a way forward. Here’s what the World Bank outlined:
The investment will be the widest-reaching ever made in international climate financing, and will take a holistic approach to reducing global warming impacts and further sustainable development. If successful, the international financial institutions’ collaboration with banks could unlock hundreds of billions of dollars in financing over the next few years, and the partnership will reach into public and private sectors, developing countries, and financial centers worldwide. And the world will get to make its first truly meaningful step towards a low-carbon future.
Here’s the IMF, from an earlier report that dove into more detail:
Steps are needed that go beyond just increasing the number of existing climate investments. These include removing ‘unfair’ barriers to capital flows, such as negative regulatory incentives and infrastructure regulations that limit the size of the capital base of new investments, as well as lowering overall financial returns and making financial services more compatible with environmental development. The IMF estimates that ‘capping’ the negative energy returns to low-carbon investments under the least-cost pathway for assets relative to conventional investments could increase the total value of low-carbon investments globally by 2.8 percent by 2030, raising from 10 percent to 13 percent of the value of low-carbon assets and creating another $ 2.6 trillion in investment opportunities.
Politicians talking about efforts to fight climate change are not new. Yet until now, they’ve mostly focused on assisting small, disadvantaged island nations and other emerging economies. Still, there is reason to believe that organizations like the World Bank and IMF, these days, have an important role to play. But, with such lofty goals, the keys to success are unlocking financing and committing to good practice early. This is the first time such an effort is geared toward the global financial sector. But with the right leadership, and support from enlightened financial institutions, the economic fruits of green progress could materialize sooner than later.