Green Economy and Climate Change: It is where the Money is Heading

We are now well into the first quarter of 2023 and it is hard not to be engulfed by a deep sense of gloom. The front pages of European newspapers are filled daily with details of the latest war atrocities, striking workers, collapsing healthcare systems, effects of inflation and the cost of living crisis and the impending climate catastrophe. Some days it is hard to muster any positivity about our collective futures. 

Despite all this, I can’t help to feel a sense of hope this year. A sense of hope because it feels like we have finally reached a tipping point where the powers that be and society as a whole has grasped the importance of tackling the climate emergency. There appears to have been a definite shift within the media and commentators away from “if” climate change is real to “when” life as we know it will irreversibly change.  

Climate industry as powerhouse for wealth creation 

Politically and economically, there are also signs that the penny has dropped. While there was until very recently a perception that the drive to NetZero would be unaffordable, slowly but surely there is a realisation that the green economy presents a vast opportunity for wealth creation. A recent report found that ‘a net zero emissions environment by 2050 will create new industries worth $10.3 trillion to the global economy by that same year.’ 

Technological innovation is widely seen as a key component in the fight against climate change. According to Techonomy founder David Kirkpatrick, as the internet industry implodes, a new climate industry is set to replace it and that climatetech will be the next value creation opportunity for finance and business. This is the crux of the issue: being able to link profits and wealth creation with climate and thereby ushering in a new economic era.

To foster innovation and progress in the field, policy makers are able to activate a number of levers. The European Green Deal, for example, sets in motion the EU’s quest to become the world’s first climate-neutral continent by 2050. More recently, the European Commission’s proposals to simplify tax credits in response to the US’ green subsidies that had fuelled fears of an exodus of companies and investment from the EU to the US, is another example. 

Structural change and evolving mindsets 

Policy interventions are only partly an answer, however. The real drivers have to come, and will come, from the private sector, with its ability to direct investment to the most needed areas quickly, decisively and at volume. While there is real hope that climatech will continue to excite investors and spur technological innovation, putting in place the right mechanisms that make it possible for said innovations to be rolled out and adopted is a big challenge. 

In the finance sector, deep structural problems that still promote and reward short termism over long-term thinking needs to be urgently addressed. Still, looming regulations around sustainable investments, including the upcoming EU Taxonomy, is already putting pressure on financial institutions to invest according to more stringent ESG principles.This has resulted in some banking organisations offering sustainability-linked loans to its customers. Agriculture is one such example. 

In this scenario, farmers are offered more favourable lending terms for moving towards sustainable practices and taking steps to counter climate change. These so-called sustainability linked loans are tied to a set of requirements that farmers have to meet during the term of the loan. Technology is provided to the farmer for measuring and verifying the changes being made and the effects they have. For sustainable farming to become mainstream, it has to be short-term profitable and green loans are a great way to initiate change and is an area we are going to see a lot more movement on over the next year. 

To carbon offset or not to carbon offset 

Controversy is following the carbon offsetting industry every step of the way. And rightly so. This is a very new sphere that requires high levels of scrutiny to avoid being abused. However, carbon offsetting should not be dismissed merely as greenwashing; done right, it is able to make a real difference in the fight against climate change. The industry has come a long way with methodologies around additionality, measurement and verification constantly improving and becoming more stringent and transparent. 

Advances in technology, in particular the ability to provide real-time, incorruptible data on the blockchain, enables investors to receive an accurate picture of the quality of their carbon offsets. The growing trend of offering pre-payment for carbon credits also ensures more high-quality projects are able to get off the ground. Take agriculture as an example again: moving towards sustainable agriculture typically requires a sizeable upfront investment, a change in the agriculture production system, and a higher level of risk. These are all major barriers for many farmers who wish to switch to low carbon farming, but can be alleviated through carbon-credit pre-payments. Approached in this way, carbon offsetting is able to make a substantial contribution in the fight against climate change and planet preservation. 

Follow the Money 

Let’s face it: money talks and that is never going to change. We follow the money, and the good news is that all signs seem to point towards climate change alleviation as the next big wealth creation opportunity. The challenge now is to bulletproof the mechanisms to ensure money is flowing to the right people, the right projects and the right areas to ensure our world has the chance of a future.