Posted on June, 16 2020

Canada and the EU have committed to embed climate change considerations into their post-COVID-19 recovery packages but, thus far, only a small fraction of government stimulus spending has looked to address sustainability issues, according to participants on a recent WWF-OECD webinar.

“Canadians have told us they want us to continue to fight climate change and work hard to protect our environment,” said Canada’s finance minister Bill Morneau. “Our view is that, just because we find ourselves in this emergency period, it doesn’t mean we should lose sight of our some of those very critical long-term goals.”

That view was echoed by Martin Spolc, Head of Sustainable Finance at the European Commission. “We believe strongly that there is no trade-off between incentivising a speedy economic recovery and supporting the sustainability transition,” he said on the webinar, which discussed how to unleash the potential of finance to green the recovery. “The green agenda can accelerate the recovery and the recovery packages adopted at the European Union level and by member states can also accelerate the green agenda,” he added.

A number of elements of recovery packages have directly addressed sustainability issues. For example, Canadian firms seeking to access the country’s Large Employer Emergency Financing Facility (LEEFF), which offers short-term lending to companies affected by the pandemic, have to committed to publish annual climate-related disclosure reports, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.

“Many Canadian firms have already committed to disclosing climate risks, and this measure will encourage even more firms to be part of this shift towards the future,” Morneau said.

Spolc explained how sustainable finance “is at the very heart of the [EU’s] response to the crisis,” noting that the package announced by the Commission on 27 May – its €750 billion Next Generation EU recovery plan – will be guided by the EU Sustainable Finance Taxonomy. This sets out which economic activities are aligned with the EU’s environmental objectives, which include climate change mitigation and biodiversity protection.

Crucially, he said, the package is guided by the principle of ‘do not harm’; that excludes support for activities, such as fossil fuel and nuclear power, that conflict with any of the EU’s six green objectives. Those six objectives are: climate mitigation; climate adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; protection of healthy ecosystems.

Morneau also noted that, in April, the Canadian government launched a C$750 million fund to help the country’s energy sector invest in projects that reduce greenhouse gas emissions.

“For the resource sector in particular, the double hit of the pandemic and the collapse of oil prices has had a severe impact,” he said, noting that the funding was designed to ensure the sector could continue to invest in environmental improvements even in an unfavourable economic context.

However, Eric Usher, Head of the UN Environment Programme Finance Initiative, noted that relatively small amounts of COVID-19 related stimulus spending by governments has explicit sustainability strings attached. “Some of the numbers that are out there so far don't actually look that promising: of the capital allocated for stimulus, not that much is really green-oriented,” he said.

“A lot of it is the devil in the detail. A lot of it is just emergency funding, which is not specific to how it's used - it's just basically to keep the lights on,” he added, “but there is definitely more work that can be done to … tie stimulus [funding] to specific sustainability objectives or outcomes.”

Usher noted the central role that the finance sector is set to play in driving a more sustainable economic recovery, noting that many green technologies require greater upfront capital (while having lower operating costs) compared with the brown technologies they are replacing. “Therefore the role of the financial sector becomes much more key,” he said.

He highlighted efforts of investors committing to climate action, such as through the Net-Zero Asset Owners Alliance, which brings together 25 investors managing $4.7 trillion, and the need to reach an agreement on what the low-carbon transition of industry sectors will look like. Reaching an understanding of that transition for various industries – work that organisations such as the Science Based Targets initiative is carrying out – enables investors to engage with companies that are not aligned with that transition, he said.

Margaret Kuhlow, WWF’s Finance Practice Leader and Acting Global Conservation Director, argued that “restoration and protection of nature must be an essential component of the global COVID-19 response” and that, for the “first time, the finance sector is grappling” with issues around deforestation and now the emergence of zoonotic diseases such as COVID-19.

Spolc added that, while progress has been made on climate, “where I see a big gap is in the awareness of investors and the financial sector to understand how the loss of biodiversity can have a negative impact on the companies in which they invest”.

“We're working with our members and trying to understand what it means to have banking portfolios where you have zero impact on nature,” said Usher. “We don't have the answers, but we’ve started to ask the questions and discuss what sort of methodologies you would use to do so.”