Finance ministers in the spotlight at the OECD Green Finance Forum ahead of major climate meeting next week

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I’ve been chairing the seventh OECD Forum on Green Finance and Investment this week – online, of course – based around the title of financing a during and post-Covid-19 green recovery. 

It’s a high-level political/economic affair in terms of speakers with a good turn-out of more than 3,000 sign ups, and excellent insight into the top line of policy/regulatory activities. There’s still time to join if you haven’t already before it ends on Friday, or to watch sessions on playback when the event finishes at the OECD Centre on Green Finance & Investment.

The conference was given a topical edge by featuring a number of country finance minister speakers who will also meet on October 12 as the 52 members of the Coalition of Finance Ministers for Climate Action. 

More of which later.

One way, of course, of financing (or de-financing, perhaps) a green recovery is by not doing something (i.e. flying), and it’s worth noting that the OECD calculated that 1,000 tonnes of CO2 had been avoided by delegates not travelling to Paris; this is a clear version of the future until we can clean up transportation and make it fully sustainable.

Rachel Kyte, Dean of The Fletcher School at Tufts University, and former World Bank Group Vice President and special envoy for climate change, told delegates that another way of not financing emissions was “to attack political incumbency and inertia” that did not recognise that 50% of CO2 emissions reduction is needed in this decade to meet the Paris Agreement: “everything we do in this Covid crisis must not propagate emissions levels,” she said.

The leadership challenge for finance ministries, she noted, was using the right fiscal and macroeconomic tools for change.

The bad news, she said, was that society was not good at identifying ‘grey rhinos’ like Covid-19, which as Margaret Kuhlow, Interim Director of Global Conservation at WWF International, added, had a clear Zoonotic transmission relationship to land transformation and was part of an increasing pattern of related viruses. 

In a timely reminder that the environment is not shorthand for CO2, Kuhlow noted that the WWF’s Living Planet Index indicated 68% biodiversity loss since 1970, which, extrapolated, could lead to 6-7% of GDP loss by 2050, and a further rise in emerging infectious diseases. 

Kyte noted: “We have to become more agile in tackling threats in plain sight. COVID-19 was the grey rhino in plain sight.”

The good news, she continued, was that bodies like the UN General Assembly and countries such as China and UK are committed to net-zero targets. “The other good news is there is a sweet spot for policies on long-term decarbonisation – such as building efficiency, electric transport and smart grids – and short-term income and growth, and violent agreement on this!”

But she outlined a number of challenges; firstly, systems need to work for broader equality and a green future: “GDP is a blunt instrument for a moment like this; can we replace it with something that internalises externalities and health and social welfare?”

Secondly, she pointed out that access to financing for low-income countries required central bankers to abandon neutrality on issues like forex and sovereign bond repayment to overcome the fact that the market is not providing relevant environmental solutions at scale. Is this a Bretton Woods Two moment?”, she asked, referring to the post WWII monetary and regulatory reconstruction effort.

Regarding the challenge to Finance Ministers, Pekka Moren, Special Representative of the Minister of Finance of Finland who co-chairs the Coalition of Finance Ministers for Climate Action, said that the October 12 meeting of the Coalition would be about reaching agreement on a new charter to “develop the functions and capacities to act and deliver” on the Helsinki Principles. He said Ministers were receiving strong support from the World Bank and IMF in that context to build on its report published in July: Better Recovery, Better World: Resetting Climate Action in the Aftermath of the COVID-19 Pandemic.

Moren noted: “In this network of partnerships, analytical power and capacity is necessary to get advice across numerous horizontal issues that policymakers need to understand. Because of Covid and travel restrictions we have actually been able to move to a more intensive working mode with weekly activities and a very positive spirit. It’s happening quickly. 20 years ago financial stability arrangements weren’t mainstream in finance ministries. They are now. Today, we need climate policy at the same level, and are looking to map those key policies out quickly.”

Cameron Hepburn, Professor and Director of the Economics of Sustainability Programme at the Institute for New Economic Thinking, Oxford Martin School, struck a positive note saying that some of the COVID-19 recovery packages are looking relatively ‘clean’. There is a huge increase in spending in 2020, notably in tech areas like hydrogen. The global public R&D spend is probably about $3bn – still relatively small money – but a range of tech at lower cost is following through. It’s not enough, we need more and faster, of course. But we’re hearing a different narrative….who might start to lose here, in a competitive race? It doesn’t all have to be about government spending, but confidence in the direction of the rebuild and anticipation of higher returns in clean v dirty sectors. In the UK, for example, there is now a net zero team within HM Treasury thinking about how to reorganise government. 

Kwasi Kwarteng, Minister of State at the UK Department of Business, Energy and Industrial Strategy, confirmed the policy direction: “We need to ensure that every financial decision takes climate change into account.” With the UK leading the COP26 negotiations in 2021 it’s important it leads from the front. 

Kwarteng said the UK was pushing countries to focus action within five COP26 priority areas: Adaptation & Resilience, Nature, Energy, Transport and Finance. 

He said economic growth and CO2 emissions reductions were both possible (“The UK managed to reduce emissions by 43% while growing our economy by 75% between 1990 and 2018”) and said the Government was encouraging investing in priority areas including low-carbon transport infrastructure, energy efficiency, sustainable land use and nature-based projects.

And on the issue of green international development, he said the UK was co-leading the UN Financing for Development’s workstream on Recovering Better for Sustainability with the EU, Fiji and Rwanda, and was committed to the mobilisation of $100bn per year in climate finance from public and private sources by 2020 and through to 2025.