Viewpoint: Steve Howard writes in the Financial Times

4 June 2009

This op-ed by Steve Howard, CEO of the The Climate Group, appeared on 3 June in the Sustainable Banking Supplement of the Financial Times.

The world is taking a temporary holiday from growth. But the economy will bounce back, doubling or tripling in size by mid-century.

Over the same period we will have developed policy frameworks that lock us into reducing global greenhouse gas emissions by 60 to 80 per cent. There will be about 2bn more people and the world's urban population will have almost doubled.

If we put it all together, all future growth will either need to be low or zero carbon growth - and the financing will have to match it.

In the past few months, the financial crisis and the election of Barack Obama to the US presidency have recalibrated global debate. With a climate champion in the White House, the global shift to a low-carbon economy will increasingly favour low-carbon players, whether they be companies, cities or states or nations.

The current financial crisis creates an opportunity to build a future that is less dependent on carbon and the uncertain price of fossil fuels. As bail-out packages are raised around the world, national leaders are increasingly aware of how their economies are interconnected and that they must work together to overcome common hurdles such as climate change.

A sizeable chunk of these stimulus packages - 15 per cent, according to a recent HSBC report - has been allocated to greening the recovery. The $3,000bn global bailout puts into perspective the price of tackling climate change, estimated at about 1 per cent of GDP by Lord Stern, UK government adviser on the economics of climate change.

The international flow of support from industrialised to developing countries to help finance the costs of shifting to low carbon growth and adapting to the consequences of climate change is estimated at around $100bn.

Green stimulus packages have set the context for further investments to follow. The global finance sector needs to not just manage climate risk, but unlock the economic opportunities presented by climate change.

New low-carbon technologies such as LED (light emitting diode) lighting and electric vehicles are capital-intensive in the short term, but give strong predictable returns over time. The rapid scale-up of these technologies requires new approaches to financing and there is an increasing need for global financial institutions to understand.

There are causes for optimism. Late in 2008, some of the leaders in sustainable finance launched the Climate Principles - an over-arching framework to develop best practice on climate change within the finance sector.

A key question that the adopting group of financial institutions is trying to answer is which policies should be prioritised to help the finance sector support the transition to a low-carbon economy. Similarly, finance leaders and organisations, such as IIGCC (Institutional Investors Group on Climate Change) representing ?4,000bn ($5,668bn) of assets under management, recognise that putting a stable cost on carbon and ambitious caps on emissions are critical to the behaviour change required to deliver such a huge economic transition.

The shift to a low-carbon economy promises to be every bit as transformative as the internet, but on a bigger scale.

Steve Howard is chief executive of The Climate Group and chair of the World Economic Forum's Global Agenda Council on Climate Change.

The carbon market looks set to expand from current European leadership into the US and Australia. The finance sector should be signalling real support for a global carbon market, not just for the trading opportunities, though these are considerable, but because it is the best mechanism we have for stimulating a low-carbon economy.

China and the US are entering a competitive race to lead the world's transition to a low carbon economy, and are already demonstrating extraordinary low-carbon growth. Europe, after an early lead, risks panting along in third place.

Supported by an increasingly strong and comprehensive low-carbon policy framework, China is making progress reducing its carbon intensity and building capacity to supply the world with low-carbon technology. It is the world's leading renewable energy manufacturer, the top maker of wind turbines and a leading manufacturer of solar technology.

Under Mr Obama, the US is under starter's orders to join the new technology race. The lumbering heavy manufacturing industries of the Midwest need to be re-skilled to compete in the clean-tech future. Silicon Valley is fast becoming low-carbon valley, with a host of venture capital clean-tech companies.

It may be difficult for our cash-strapped, risk-averse financial institutions to raise their gaze from the current recession to focus on the looming climate crisis. But the prize for doing so will be low-carbon prosperity and new markets. Financial institutions will need to put their best people on it.

Facebook icon
Twitter icon
LinkedIn icon
e-mail icon
Google icon