Christopher Walker: “Build it back better…” – how green is your bailout?

Hope for real green stimulus is still looking scant

Politicians across the globe are pledging not to let this crisis go to waste and to use economic stimulus packages to “build it back better.” Enormous change is indeed possible thanks to historically unheard of borrowing levels, which afford politicians the opportunity to do something they love – give away other people’s money. But for those of us who are hoping for real action on climate change, there has been precious little “meat” in the gargantuan stimulus packages. Maybe this will come as the initial emergency responses are engineered to more finely tune regrowth. But rather than rely on governments, there is much that can be done by consumers, businesses and shareholders. That is, by you.

As plagues go, the terrible suffering from Covid-19 is not unique, but the “pancession” it has induced is. Last week, Fitch revised its global GDP forecast to a prediction of -4.6%, with the States falling 5.2% and the Eurozone falling 8.2%. Amongst the major economies only China has a chance of positive growth. Amid civil unrest, USA unemployment has reached forty million, with many cities now having over 30% of the workforce out of work. The World Economic Forum stated: “hundreds of millions of people could be left without work due to the impact of Covid-19.”

Against this grim backdrop, politicians have scrambled to deliver positive economic shock treatments with record low interest rates, unheard of job support schemes and mind-boggling stimulus packages. In the US, President Trump signed a two trillion dollars package (the CARES Act) back in March. This dwarfs the $787 billion package put together to exit the 2008/9 recession. Similarly in Europe, the EU Commission has already signed off on nearly two trillion euros of state aid by individual member states. 

The IMF has been tracking these efforts and so far has found that sadly “only a handful of them” have directly targeted climate change. Many have actually pushed things in the opposite direction. Take France’s eight billion euro autos revival package last week. Sure, one billion euros was set aside to encourage the purchase of electric vehicles, with a target of one million a year by 2025. Great. But the existing subsidy is already up to 6,000 euros. Raising it to 7,000 will surely only make a marginal difference. The vast majority of the money was directed at the bailout of troubled car-maker Renault, which even so still had to shed thousands of jobs just days later. And while “cash-for-clunkers” programmes sound good, last time Germany did this consumers simply bought gas-guzzling SUVs. The European car industry has been painfully slow to adjust to the potential of electric vehicles (Peugeot produced zero electric vehicles last year).

The IMF also notes that far too many countries rather than axing fuel subsidies are responding to the crisis by increasing them, even for the aviation industry. In the UK, Extinction Rebellion argued “with 90% of UK planes grounded…let’s embed this change, rather than bailout this destructive industry and its tax-avoiding owners.” Greenpeace demanded bailouts should come with strings attached – noting only 15% of people take 70% of flights. 

Very few strings attached so far. The US has approved $25 billion of aid, while around 30 billion euros is under discussion in Europe. The French seven billion euro bailout of Air France did include a target to reduce carbon emissions on domestic flights, but will they follow through? Last week’s nine billion euro bailout of Lufthansa by the German Government had no green conditions at all.

There has been a lot of “green talk,” but so far very little “green action”. This must change. As Ursula Von Der Leyen herself says: “for climate change there is no vaccine…Europe must now invest in a clean future.” The EU’s green recovery plan promises 350 billion euros a year to refit buildings, with schools, hospitals and social housing being given priority. However, it is not quite clear where this amount is coming from, as the new taxes proposed amount to barely a tenth of this sum. And the 40 billion euro climate Transition Fund seems derisibly small in the context of the overall stimulus package.

The States is no better. House Speaker Nancy Policy is trying to wrap up some green proposals in the imminent infrastructure bill (such as $25 billion for clean drinking water and $34 billion on electric grid investment to accommodate renewables). But will these proposals pass? Senator Sheldon (D-RI) says “there is a lot of bipartisan appetite for a significant infrastructure bill”. Well, maybe. But I fear a lot of people’s idea of infrastructure is actually more about bigger airports, larger roads and more bridges. Republican senator Ted Cruz (R-Texas) warned Democrats about extorting “a crisis to advance their political agenda.”

This begs the question – should we solely rely on Governments to build back better? Deloitte’s paper “Navigating the Energy Transition from disruption to growth” records a strong desire by businesses and consumers to move in the right direction. It also shows what they must address – transportation has overtaken power generation and manufacturing as the main source of Co2 emissions. This is driven by the growth in aviation, and the spiralling cost of the daily commute. We can address both these issues ourselves.

Much has been done with cycle lanes and improving public transport, but as I have argued previously, why not reduce commuting itself? Remote working is a key benefit from this crisis which we must seek to enshrine in businesses going forwards. Twitter and Facebook have both pledged to offer employees this option post crisis. Recent US CDC (Centre for Disease Control) guidelines for working in offices are so draconian (plastic shields between desks, no social interactions, no water coolers or coffee, etc.) that remote working becomes even more attractive. Businesses are also starting to realize the potential for cost reductions. Barclays CEO Jes Staley argues large offices for banks “may be a thing of the past.”

The 90% reduction in demand for airline flights has been driven by virus safety considerations, but can we now capture some of this reduction by behaviour change? Zoom conferencing has demonstrated just how unnecessary many of those flights to business meetings are. Maybe this summer’s enforced preference for domestic tourism will also take root. 

Governments may have some role in encouraging these behaviours – using tax incentives to make office space more expensive, or remote workers cheaper to hire. But it is changes in consumer and business behaviours that will really create the new world we want post Covid-19, and shareholders can have a role. Maybe annual reports should start showing what proportion of staff work remotely, how much was spent on air travel, and how many meetings were held virtually? 

Governance not governments may be the solution.

Christopher Walker is a writer on business and politics. He sat for several years on the asset allocation committee of a major asset manager.