Ad hoc measures won’t be enough to fight climate change. The EU needs to step up and the ECB should start pumping some of its €60 billion monthly investments into green projects, insists MEP Neena Gill.
Neena Gill CBE is a British MEP with the S&D group and represents the Labour Party at national level.
Trump’s decision to wrench the world’s largest superpower out of the Paris climate change agreement could have a catastrophic and lasting impact on future generations.
Bafflingly, much of the international community has responded to his decision with a shrug of their shoulders. Many believe it is too late for the Trump administration to stop the world’s progression into a green economy because many private, profit driven companies have now accepted the green agenda.
Oh to be an optimist; I view this attitude as dangerously complacent. The truth is that even with the US in the Paris agreement, only a thin sheet of ice separated us from global environmental disaster.
The €23 billion invested globally each month into clean energy investments leaves us a long way off from meeting the IEA’s target of 13.5 trillion climate investment by 2030. Now that the US has stepped back – and this figure likely to reduce – society as we know it faces an existential threat.
Not to mention that by tearing up the diplomatic agreement, the danger is that the US has created an excuse for other reluctant co-signatories to bail out of the agreement.
Before the floods start rising, let’s at least put the EU on the right side of history and take the lead. Two things need to be done right now: a clear definition of what constitutes ‘green’ in projects and investments, and then, using these terms, the creation a critical mass of funding that is sufficient for tackling the problem.
Research has shown that massively underperforming investment products are being given the green label. A robust definition of green will not only re-focus government investment in the right direction.
Consumers will also be encouraged to invest their savings and pensions in sustainable solutions. More than 80% of household assets are long term investments. So it makes sense financially for them to coincide with long-term sustainable objectives.
With the US turning inwards, it is vital that the EU Commission’s High Level Expert Group on Sustainable Finance takes the lead by presenting bold and ambitious definitions and a plan of action when it presents its mid-term conclusions in July. With this, the EU can begin to focus the investment in the right direction.
The cost of fighting climate change is expensive. Switching fossil fuels for low-carbon energy sources alone will cost $44 trillion between now and 2050, according to a 2014 report by International Energy Agency.
To hit this target, rather than using ad hoc measures (like green criteria in IORPS and in STS regulation), it is necessary to mainstream the green ideas in all our capital flows and regulations. To do this, the EU has to go a step further on the macro-economic level.
That’s why last week I urged ECB President Mario Draghi to use more of the ECB’s €60 billion monthly investment in quantitative easing for green purposes. When ratifying the COP21 climate change agreement, G20 leaders called for “clear, strategic policy signals.”
The ECB’s own mandate supports “a high level of protection and improvement of the quality of the environment.” So why can’t the ECB target its quantitative easing program – or at least a large percentage of it – at green investments?
Draghi’s response was disappointing given the urgency of the problem. The asset purchase programme of buying corporate bonds – part of the ECB’s quantitative easing – was designed out of pure monetary policy as well as for risk management reasons.
I understand concerns that deliberately favouring green investment could compromise the fundamental requirement of having a level playing field, leading to economic risk. However, the argument for more green investment can be made without compromising the ECB’s sector neutrality.
It simply needs to take the economic risk of stranded assets more seriously. Changes in government regulation, or even legal action could result in non-green assets becoming stranded.
In response to my questioning, the ECB president did stress that within this framework investment programs are open to companies issuing green bonds. However, the concern is that we do not know what percentage of this investment is currently green.
At present, national central banks in the eurozone buy the bonds on behalf of the ECB but the size of their investments is not declared. A transparent review of how to better align ECB injections with the goal of funding a low-carbon economy is critical.
Monetary policy is important, but it is just a tool to serve society. It must not prevent us from investing in sustainable long term solutions for the future of our planet. To tackle climate change the EU needs joined-up, bold thinking, as well as transparent investment.
Already, the European Fund for Strategic Investments (EFSI) is taking a lead in this area. Yesterday Vice-President of the EFSI Dombrovskis said “The world can count on us for global leadership in the fight against climate change.”
To be a real success though, green investment must not only come from individual bodies like the EFSI and the ECB, but from broader frameworks, including the Commission’s flagship Stability and Growth Pact (SGP).
Finance is too often overlooked by environmentalists. If we are to keep the planet safe from disaster, we need to mainstream green investment, not isolate it as a niche pursuit.
As well as encouraging different European institutions and bodies to work together to resist climate change, we need to join up our environmental strategy with our external action partners.
Even when the US leaves the Paris climate agreement, 194 of the world’s 197 nations will still be signed up to the agreement.
The EU-China joint summit last Friday showed promise in the battle for a sustainable future, as they promised to work together on strategies to tackle climate change, including cooperation on regulation and legislation.
For every step back that the US administration takes back away from tackling climate change, the EU and its allies must take three steps forward.