by Matthew Smith, Head of Sustainable Investments, Storebrand Asset Management
Over the last couple of weeks, countries around the world have deliberately reduced social and economic activity in order to slow the spread of the highly contagious and potentially deadly COVID 19 virus. As a direct result, we are now experiencing the most serious economic crisis since the end of the Second World War. International travel and tourism have ceased completely, manufacturing output has plummeted, and unemployment rates have skyrocketed.
Naturally, there are increasingly desperate calls from businesses across a range of sectors, for governments to take drastic steps to uphold liquidity and to avoid a wave of bankruptcies. Businesses need cash immediately, and in many countries, they are now being heard. While decisive public intervention is necessary, what is perhaps even more important in the long run, is how governments manage the recovery. As a society we need now to be asking our leaders two key questions; What should a post-Corona economy look like? And who is going to fund it?
Perhaps one of the best starting points to answer these pressing questions is Europe in the late 1940s. Ravaged by 6 years of war, European cities, industrial facilities, bridges, railways and ports were badly damaged. Millions lived in refugee camps, and food shortages were severe. Against this backdrop, the United States launched what was to be known as the Marshall Plan, a series of economic recovery programs to Western European economies worth the equivalent of $128 billion today. The program proved to be an unprecedented success. The years 1948 to 1952 saw the fastest period of growth in European history, with industrial production increasing 35%.
Interestingly, the aspect of the Marshall Plan that is most striking is not its size or the obvious initial focus on infrastructure rebuilding. What is most fascinating is its vision and long-term perspective. Perhaps the best example of this is the Plan’s Technical Assistance Program. Here European industry leaders travelled to the United States, where they studied industrial processes and received statistical and technical assistance. The result; a dramatic increase in the productive efficiency of European manufacturers in all major industries. If we have one lesson to learn from this dramatic period of history it is this. Public intervention is most successful when it targets not only the short-term liquidity demands of an economic crisis but when it identifies and supports the key drivers for economic growth in a 20 to 30-year perspective. In 1948, the key driver for Europe was industrial efficiency, in 2020 it is sustainable development.
This train of thought has already been espoused by a number of leading figures in the global economy. Director of the International Energy Agency (IEA), Fatih Birol, has for example called for large scale investments in clean energy technologies such as solar, wind, hydrogen, batteries and carbon capture. While this is undoubtedly a positive call to action, Birol’s energy focus needs to be broadened to include the economy as a whole. If the 17 Sustainable Development Goals launched in 2015 have taught us anything, it is that sustainable development is multi-faceted, socially interwoven and spans a whole range of economic sectors. A clean energy focus, while integral to sustainable development, needs to be complemented by broad-based investment in climate and environmental technologies. These technologies must be proven to deliver measurable improvements, while at the same time causing no significant harm to other environmental and social objectives.
The good news, both for companies, states and investors in the EU, is that these climate technologies have already been defined. In an unconscious bout of pandemic preparedness, the EU commission finalised a taxonomy of climate-positive activities at the beginning of March. The EU Taxonomy is a classification tool to help investors and companies navigate the transition to a low-carbon economy. The Taxonomy defines 67 climate positive activities, across 7 sectors, which make a substantive contribution to climate change mitigation and adaptation. The aim is to channel private investment into low-carbon sectors and to stimulate activities that de-carbonise high-carbon ones. With this technically assured classification system in place, the EU has a once in a century opportunity, to transform the economy and ensure sustainable growth and rapid decarbonization. The crisis allows a brief window for massive public stimulation. Direct subsidies, public-private partnerships and tax relief can all be used to accelerate the green transition and deliver in a few years what could have taken 50.
The message then to EU states in the should be unequivocal. There will never be a better opportunity to slow global warming and to finance a green and sustainable economy than right now. Only in times of crisis and recession can governments responsibly open the coffers and pour money into large scale initiatives. The direction the economy needs to be moving is abundantly clear and scientifically documented, and we have the roadmap to get there. Only one thing remains in the way of a “Green Marshall Plan”, and that is finding the necessary political willpower to get started.
Photo courtesy of SPP