Crunch time for a green new deal

Green growth and cleantech could help lift us out of recession, says… well, just everybody. So, if we’re all agreed, asks Martin Wright, what’s stopping us?

From the gleaming towers of investment analysts to the scruffy poster-strewn offices of NGOs… From the sun-kissed laptops of Californian venture capitalists to gritty number crunchers in obscure thinktanks… Just about everyone thinking creatively about the economic future suddenly seems to be singing from the same hymn sheet. And the chorus goes like this:

• If we want to tackle climate change before it’s too late, we need a crash programme of investment in clean technology and the green economy
  
  And…
• If you want to know what will be the next boom area as we come out of the crunch, look no further than those sectors, poised as they are for stellar growth
  
  So…
• If governments want to spend their way out of recession without losing track of climate goals, what better recipient of their largesse?

The last few months have seen everyone from Barack Obama to Merrill Lynch add their voices to the choir [see box at end, ‘All together now’]. It’s a surge of global ecological Keynesianism which should have Roosevelt smiling in his grave.

“This surge of global ecological Keynesianism should have Roosevelt smiling in his grave”

On the surface, it’s a no-brainer. As Nicholas Stern put it recently, when it comes to the scale of economic threat, “this recession will be big. But climate change will be bigger.” So if we can kill those two looming vultures with one stone, so much the better.

Indeed, were it not for the crunch, green growth would surely be flavour of the month in its own right. First, there’s overwhelming consensus that a low-carbon economy is the only viable long-term sort on offer. Add in volatile resource prices and rising fears about peak petroleum. Then think about the yearning for a ‘flight to tangibles’ among investors stung by exposure to toxic loans. Put them together and you should have a bonanza.

That’s certainly the view of the normally sober suits in Merrill Lynch, who call clean technology “the sixth industrial revolution”. ML’s cleantech strategist, Steven Milunovich, suggests that, by 2011, the economy would have recovered enough to allow investors to exploit some golden opportunities. Energy efficiency, electric cars, and wind- and solar-powered microgrids are among the lucrative fruit waiting to be plucked, he says, with geothermal energy and biofuels as “dark horses” which could yet come up on the inside track. And venture capitalists, accustomed to thinking way out of the box, would play a vital, disruptive role in making it all happen.

Long-term, then, the future’s bright, the future’s green. But meanwhile, says Milunovich, there’s a case for short-term subsidies, to nurture these nascent technologies and see them through to the sort of scale where they can stand on their own two feet.

And there’s the rub. Like all new business opportunities, cleantech depends on debt financing to achieve lift off – and with its technologies still at a relatively early stage, it’s more dependent than most. Which gives it only slightly more than a cat in hell’s chance of winning really significant investment in the current climate.

“Investors are buying the long-term story,” says Rob Lake, head of sustainability at pension fund manager APG Investments, “but with [the cleantech companies] caught in the credit crunch, they know their return will be much reduced. So they’re holding fire for now.” And that, says Bruce Jenkyn-Jones, managing director of cleantech specialists Impax Asset Management, means that a lot of promising but marginal projects, such as major new wind farms, are left in limbo.

So how do we free them from the shackles of the crunch – and set the economy firmly on the path of long-term sustainability?

There is a golden opportunity, says David Bent, head of business strategies at Forum for the Future, for governments to “explore their new appetite for regulation. They’re already keen to regulate financial markets so that we’re not exposed to systemic risk. So why not do it with other systems which are also at risk, and on which we completely rely – like a stable climate, like soil, and so on.”

Alice Chapple, Forum’s director of sustainable financial markets, agrees. “We know that the financial sector’s risk management systems didn’t work. We know they didn’t include a whole tangle of factors, from sub-prime loans to misaligned incentives. So now we’re much more open to questioning the assumptions we make about other risks, too.”

“The so-called ‘NICE’ decade had some pretty nasty consequences!”

And not before time, says Bent. “We’ve had a period where we were effectively privatising profits and socialising risk. We’ve seen the consequences of that in the financial markets. Now we’re starting to see them in terms of climate change and the wider environment, too.” Liberal markets are all well and good, he adds, but not if they take us “to the edge of a precipice… The so-called ‘NICE’ decade had some pretty nasty consequences!”.

If governments are going to rescue companies, whether GM and Chrysler or Northern Rock, says Bent, they have an opportunity to point them in a more sustainable direction. So far, the UK has shown precious little sign of doing so with the banking sector; it remains to be seen whether Obama will force Detroit to take the green road.

Business, though, doesn’t need to wait for the heavy hand of government intervention. The title of a new report produced by Forum in association with Capgemini sums it up: Acting now for a positive 2018: preparing for radical change. The last decade has seen some pretty significant shifts in thinking around sustainable business, Bent says. “Ten years ago, companies used CSR to protect their reputation, but often left their core business untouched.” Now there’s growing awareness that sustainability encompasses a lot of gritty questions to keep CEOs awake at night. Questions like: ‘Will there be crippling constraints on the resources we need to survive? Will rising prices for raw materials wreck our business plans? Will climate change disrupt our markets beyond recognition?’

To help business leaders make sense of such questions, the report sets out four possible scenarios for the next decade. They have certain assumptions in common: that it will witness not only the end of cheap debt, but also of the days of cheap energy, food, labour and raw materials – along with the first symptoms of the breakdown of natural systems. The four scenarios sketch out a range of potential responses – from enlightened globalisation to rampant protectionism. But in each case, the report concludes, those businesses which have put sustainability at the heart of their operations will be best placed to weather the storm.

When businesses are foundering and people are losing jobs, it can seem crass to start talking of silver linings. But, as Chapple puts it, in the wake of the financial meltdown, “we know that business as usual isn’t going to happen. And it’s that discontinuity which helps us change mindsets. We have a once in a lifetime opportunity to really shift the landscape.” 

Martin Wright is Green Futures editor in chief.

8 January 2009

Martin Wright

Add new comment