Grass roots, green and geopolitics are the areas where I envisage change as a result of the pandemic. All will be positive for tackling climate change and should be good news for the UK and the City.
Grass roots reflects the way more activities may occur closer to home as firms build resilience into supply chains and people work and buy more things locally than before.
Green captures the collective consciousness of a greater focus on environmental as well as health issues. Geopolitics is the move to a G2 world dominated by the US and China. While their relationship is adversarial, one area where both are now aligned is climate change.
The UK has consistently taken a lead role in this area. In 2021 it can shepherd further, through its presidency of the G7 and hosting of the Cop26 climate summit in Glasgow. With more countries committing themselves to achieving net-zero carbon this could be a halcyon period for global policy agreement on climate change.
Progress necessitates this. Recently western economies have outsourced their carbon emissions, usually to poorer nations. Equally, for people to think that their own actions can make a difference, they need to believe that people across the globe have similar aims.
Actions as well as words are needed. Governments need to avoid being too prescriptive on the green agenda but a global approach can incentivise change.
Before Cop26 one focus will be common timeframes for national plans. This should motivate countries and remove fears of being at a near-term competitive disadvantage because of disruptive or high transition costs. Importantly, there is a need for a global mechanism to price emissions. This points to a global carbon price as part of a market-driven solution.
There has been a sea-change in thinking. Now it is accepted that reducing emissions and addressing climate change can boost growth and create jobs.
The UK has outlined a ten-point plan to address its climate agenda. While this is welcome, a challenge is that more government funds will be needed. For instance, retrofitting homes is necessary but expensive and the public cannot afford this. Market solutions may take time.
Increased investment in productive areas such as mechanisation, innovation and energy, with greater use of renewables, will be desirable.
An achievable challenge will be to keep the costs of a green transition down. In a report this week, Policy Exchange recommended local electricity pricing to help integrate future offshore wind and provide cheap, low-carbon energy. Thus, lower local energy prices could be the catalyst for the green manufacturing sector across different regions of the UK.
There will be concurrent change in terms of behaviour, spending patterns and new products, helped by policy and regulations.
Central to a green economic transformation will be the role of finance and aligning it with the aim of achieving a net-zero carbon economy. The City will be in a strong position and this should reinforce the need to channel more funds to small firms and to the future growth areas of the economy.
There will be the ability to mobilise private finance for green schemes, including infrastructure. Green investment needs to be seen as profitable, requiring an alignment of investors’ needs with what is possible. That requires transparency from firms and more questions being asked of them by investors.
Paramount is the need for more green financial assets in which to invest. Greater breadth and depth are needed across green financial markets and London can help to build this. The UK’s green sovereign bond is one step. There will be many more, as the green agenda is rightly seen as necessary for strong, sustained growth.
Published in The Times on 11 December 2020.