Dramatic change is being felt across all industries and geographies, and countries around the world are facing major challenges from COVID-19 and climate change to aging populations and job losses. Finance ministers must respond quickly, shaping and implementing rescue plans and promoting dynamic initiatives to secure international support.
As the focus begins to shift toward the post-pandemic recovery, there is huge pressure on budgets, and while many businesses are making changes to how and where they spend, they still need new ways to finance smart, inclusive and sustainable projects. A fundamental overhaul of corporate governance, finance policy and energy systems and will play a vital part in this, and ensure businesses continue to flourish as the pandemic calls for a complete re-balancing of trade efficiency and resilience. Finance ministers must find ways to unlock finance for the best growth and job enhancing investments available, mobilising all pools of finance and utilise them more effectively.
The current global economic and political outlook add both risk and uncertainty, but also offer an opportunity to improve the choices businesses face on a daily basis. Dealing with the crisis requires a move toward a greener economic transformation, and there is a strong business case to introduce global systemic change. With this in mind and aiming to harness the biggest increase of government spending in over ten years, environmental groups have advised policymakers to plan recovery packages that fuel bruised economies and encourage decarbonisation, maximising the benefits of the investments for employment and sustainable growth.
The COVID-19 pandemic has affected us all, economically, physically and emotionally, and has underlined the fragility and dangers of the old growth path. Even fossil fuel majors like BP have committed to eventually becoming carbon-neutral, responding to growing pressures from shareholders. Attempts to revert back, relax existing environmental regulations and return the economy to the old model, notorious for low productivity, high inequality and environmental risk, would be catastrophic.
Lack of confidence in the economy may trigger a financial-market meltdown and doubt in the decision makers is also likely to shackle the recovery of both consumption and investment. If we merely get through this crisis while upholding the same economic model that got us here in the first place, further challenging shocks are inevitable. Governments, financial institutions and corporate crisis managers need the right investments, the right supporting policies and the right finance now, to bolster the economy.
Investor demand for sustainable investing is growing, and 2021 will likely be the year when financiers decide to mainstream climate-transition analysis into their portfolios. Green investments perform well, if not better than alternative investments, and the days where investors had to compromise on either ethics or earnings are over. The drive behind responsible investing has been growing for the past few years, but with a number of new initiatives, regulations and profitable sustainable fund performances in response to COVID-19, further growth is expected. Many of today’s top-performing investments are in sectors that are following more sustainable methods; from green technology to renewable energy and food production to health and wellness.
The COVID-19 crisis is a wake-up call, and is sharpening the financial markets’ understanding to address looming threats like climate change. To achieve this, all financial institutions need to ultimately align their portfolios with strong, sustainable and resilient investments. Finance ministers have the chance to implement inclusive packages now, that can help restart economies while setting the standard for ecological and robust growth.
The duty of the finance function has traditionally been to report financial results, ensure that the business is delivering against its strategy and to help navigate the company in a rapidly changing
world. It is clear that business models need to change to be more equipped to resist shocks and the recovery must be green, but finance needs fixing too.
In previous crises, like the 2007 economic crash, governments flooded the market with liquidity. However, they did not direct it toward good investment opportunities so much of that funding ended up back in a financial sector unfit for purpose. The threat of the current crisis is even more severe, and presents the risk of a major depression. It aligns more with the post-WWII era, with its disrupted economies and a very real danger of huge unemployment, than any previous global financial crisis. The challenge today is to avoid an alarming economic disaster, and to set off on a new path of growth that responds to the current climate threat.
Meaningful ecological policy action and ongoing long-term finance is needed as the current crisis presents an opportunity to harness finance in productive ways to drive long-term growth. There is no quick fix as a three- to five-year investment cycle doesn’t match the lifespan of a wind turbine (more than 25 years), or encourage the innovation needed in e-mobility, natural capital development and green infrastructure. The pandemic serves to inspire responsible practice among mainstream economic players, showing that it is possible to reconcile economic objectives with environmental and social requirements. Heading into 2021, inclusion and sustainability can, and must, go hand in hand.
Thinking ahead to a strong recovery that supports job creation and consumption needs to encompass a complete review of, not just a restart of, investment. This includes three main areas of focus including rescue, recovery and transformation to a new form of growth. This moment of upheaval is a huge opportunity to start investing in resilience, shared prosperity and integrate mainstream climate change considerations into the entire finance ecosystem, targeting both short-term economic recovery and long-term structural changes.
The catastrophe of COVID-19 has given the world one silver lining. It has served to push issues such as climate change and plastic pollution deeper into the public conscience and these projects continue to require financing from creative and hungry investors. The pandemic has thrown ‘business as usual’ out of the window, and a wave of new thinking is emerging on how we can do things differently – better, fairer and greener.