The COVID-19 pandemic represents a historic window of opportunity to accelerate the global transition to a net zero emission society. Fiscal measures providing immediate pandemic relief have surpassed USD 7 trillion in total. But only a fraction of the current programs addresses energy transition infrastructure or other ‘greening’ activities. Instead of encouraging companies to return to their pre-crisis paths, economic recovery programs should rather incentivize companies to account for externalities by measuring and managing associated effects.
Public funds are not without limit. Overstressing public budgets will suppress long-run growth. Providing appropriate conditions for the potential crowd in of private sector green finance will significantly accelerate the recovery. It will thus unburden public entities by inducing a substantial leverage on the available financial resources. In addition, it will provide essential signals to the financial system and thus direct capital towards ‘green’ and ‘greening’ activities. It will align the allocation of investments with policy targets and will allow for the system-wide application of metrics to measure progress against environmental targets.
Beneficiaries of fiscal pandemic relief and recovery measures should be in line with these principles if they have 1) a commitment to a net zero by 2050 emission pathway, 2) a mitigation strategy including intermediary targets and details on how to achieve this plan, and 3) metrics that allow to verify progress and contribution of new investments to achieving the emissions’ reduction trajectory. The immediate COVID-19 recovery measures are different in their nature from policy measures originally intended to mitigate climate change. Additional approaches are needed to close the gaps in available policy frameworks and utilize the COVID-19 measures to develop their fullest potential, i.e. ensuring economic recovery while simultaneously building the foundations for achieving climate targets. Incentivizing the implementation and the disclosure of net-zero transition strategies could close this gap. In addition, it is important to prioritize a preferential set of fiscal recovery policy types which offer high economic multipliers and substantially positive climate impact.
A long run strategy for sustainability and resilience attracts investors and customers. Sustainability and resilience are continuously gaining attention. Integrating sustainability and managing greenhouse gas (GHG) emissions in line with net-zero pathways is key to the resilience of business models as well as a corner stone for building trust towards investors and customers. Furthermore, companies pursuing net-zero pathways can generate positive spillovers by incentivizing public entities to substantiate their long-term strategies (LTS) and Nationally Determined Contributions (NDCs).