The World Needs a Bail-Out

Roderick Kefferpütz
Oct 29 · 4 min read

“We face the greatest challenge to the world economy in modern times” — that’s not a sentence from the Extinction Rebellion Handbook. It was the opening line of the G20 leaders’ declaration at the London Summit in April 2009. Only ten years ago, the world slid into the worst economic and financial crisis since the Great Depression. Multi-billion-dollar economic stimulus packages were cobbled together as a response.

This crisis also gave birth to the concept of the Green New Deal. The idea of using economic stimulus packages to simultaneously boost the economy and prevent climate change, was gaining traction. “Our response to the economic crisis must advance climate goals, and our response to the climate crisis will advance economic and social goals,” wrote UN Secretary-General Ban Ki-Moon at the time. But few national governments heeded his call for action.

Planet heating up, economy cooling down

Today, ten years later, the world economy is again standing on the brink of recession. And climate change has also advanced; we are nearing ecological tipping points sooner than expected. The permafrost is melting faster than forecasts calculated. The planet is heating up and the economy cooling down — a Green New Deal would be a win-win in this situation. According to the United Nations Conference on Trade and Development (UNCTAD), an ecological stimulus package would boost economic growth by another 1.5 per cent.

But an investment offensive for ecology and the economy is not on the horizon. Take Germany, for example. The country has ample fiscal leeway to invest in an ecological turnaround and simultaneously boost the economy. But the economic opportunities of climate protection are not an issue in Germany. On the contrary, the debate there seems to be going backwards rather than forwards. Some pundits hope to use a possible recession as an excuse to take the climate issue off the political agenda.

Compared to the climate debate in Brussels, the seat of the European Union, Germany is living in a parallel universe. While Germany has put together a climate package consisting of a tax on airplane tickets, an increased tax rebate for commuters and a low price on CO2, the new European Commission President Ursula von der Leyen has announced the largest investment program to date for climate protection. She wants to mobilize one trillion euros by 2030 for climate change. President von der Leyen has even made one of her Vice-Presidents responsible for the “Green Deal” and has highlighted the economic advantages of climate protection, while German Chancellor Merkel does not emphasize the economic opportunities climate protection can offer. Brussels is all about the economic opportunities, Berlin all about the risks. Even France and Italy are now pushing for a Green New Deal for Europe.

The European Commission has understood that the green modernization of the economy is a massive opportunity. But it needs investments. Mobilizing financial markets is crucial in this regard, because this task is too big to be handled by public budgets alone. That’s why the European Commission is developing a “green financing strategy” and the European Investment Bank (EIB) is to become a “European Climate Bank”. Numerous governments, including those in the UK, France and Luxembourg, are already greening their financial markets by passing legislation that give environmental criteria in financial products more importance. These countries have realized that there’s money to be made with green financial products. A rethink is also taking place in the financial industry: “If we don’t have a planet, we’re not going to have a very good financial system,” said the CEO of Morgan Stanley.

“Saving the planet” as a profit-making business model

“Climate change is the biggest market failure the world has ever seen,” says the economist Nicolas Stern. If we can overcome this failure by anchoring an environmental component into markets, we could create the next big investment opportunity in this century. For this to become a reality, however, governments will have to launch an ecological investment offensive and mobilize financial markets in this regard. Should they fail to act, another actor could step into the breach: Central Banks.

Only two years ago, the Central Banks and Supervisors Network for Greening the Financial System (NGFS) was established. Central Banks are therefore increasingly debating their role with regards to climate change. And they certainly have a role to play.

The European Central Bank (ECB), for example, could adopt environmental criteria that redirect financial flows from fossil to post-fossil assets, essentially greening the grey world of monetary policy. The ECB could use such criteria in its asset purchase-program. Why should a coal mining company receive the same beneficial financing opportunities as a solar company?

With just a few changes in monetary policy, CO2 emissions in the corporate and bank bond portfolio could be reduced by 44 per cent, says Dirk Schoenmaker, Professor of Banking and Finance at Erasmus University in Rotterdam. Banks, hedge funds, insurance companies and rating agencies would all take climate aspects into account in their evaluations and investment decisions. “A decade after the world bailed out finance, it’s time for finance to bail out the world,” writes economic historian Adam Tooze. Christine Lagarde, the new head of the ECB, has already announced that the debate on how central banks can contribute to climate protection is a priority.

You don’t stop climate change with half-hearted measures, because climate change is a moving target. If you move too slowly, you lose the race against climate reality. The point is to rewrite the rules of the game for business according to environmental criteria and to seize the resulting opportunities. Saving the planet needs to become a profit-making business model.

Roderick Kefferpütz

Written by

Advisor on geostrategy, industry & tech for Germany’s State Ministry of Baden-Württemberg. Previously EU Advisor in Brussels.Views my own- europecallingblog.com

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