As governments in Europe, North America and around the world announce trillions of dollars in stimulus to revive moribund economies, many experts are urging them to focus on climate-related efforts that will help the world avert the worst impacts on climate change.

This is a sentiment that has moved from the sidelines to becoming a key recommendation of the International Monetary Fund (IMF). The IMF’s recently released flagship publication in advance of its annual meeting emphasized the power of public investment in uncertain times, noting that raising public investment by 1% can increase private investment by more than 10%. It also noted that “the goal of bringing net carbon emissions to zero by 2050 in each country can be achieved through a comprehensive policy package that is growth friendly (especially in the short term).”

At the same time, institutional investors and asset managers are deepening their commitments to sustainable financing by increasing their investments in the green economy and providing fuller disclosure of their climate-related risks and opportunities.

It’s critical that government officials and business leaders have mutually reinforcing strategies in order to maximize the impact of both public and private financial efforts. Otherwise, governments could pursue investment plans that gain little traction among corporate strategists, while institutional investors may miss out on opportunities created by government programs that would reduce the risk of investing in the emerging clean economy.

While there has been growing focus on the importance of harnessing capital markets to address climate change, government action remains critical, says Sean Kidney, CEO of London-based Climate Bonds Initiative, an international non-government organization working to mobilize debt markets for climate solutions.

“It is not possible for private markets to do this. That is a total fallacy,” Kidney says. “This is not something that is going to be solved by the private market. This is something that is going to be solved by close collaboration between public and private markets.”

Kidney will join a panel of financial experts on Wednesday in a webinar, “Financing Green Stimulus: Opening the Purse Strings,” co-hosted by Corporate Knights and the German embassy in Canada. The virtual conference is part of a series sponsored by the German government; called Building Back Better Together, it looks at green recovery plans in Canada and Europe and highlights risks, opportunities and best practices to ensure those plans are practical and effective.

In a series of white papers released this spring, Corporate Knights advocated that Ottawa allocate $109 billion over the next decade to climate-related spending, with some 40% of that money earmarked over the first two years as part of a green stimulus plan.

That investment would generate an additional $681 billion of spending from private sector sources, for a 7-to-1 ratio of private sector/public sector contribution, according to analysis by Corporate Knights; Ralph Torrie, president of Torrie Smith Associates; and Céline Bak, president of Analytica Advisors. Together, that spending would reduce Canadian greenhouse gas emissions by 242 megatonnes annually by 2030, setting the course for a net-zero-carbon economy by 2050.

Similarly, the Task Force for a Resilient Recovery issued its report this summer, calling for Ottawa to embark on a $55.4-billion green recovery package over five years that would focus on building retrofits, electric vehicle production and infrastructure, clean power, natural infrastructure and adoption of clean technology.

On October 1, the Liberal government announced a $10 billion “growth plan,” which will see the Canada Infrastructure Bank (CIB) focus on five key areas. Some $6 billion of that will go to clean-energy infrastructure, the adoption of EV buses and charging networks, and energy retrofits for buildings. The CIB’s chief investment officer, John Casola, will participate in Wednesday’s web conference on climate-related financing.

The federal infrastructure bank was established to provide public-private collaboration in the financing of major projects in strategic areas of the Canadian economy. “Every dollar of public investment capital from the CIB will increase impact because we attract additional investment from the private sector,” says David Morley, the agency’s head of corporate affairs, policy and communications.

The CIB hasn’t indicated what level of private sector investment it requires before approving financing for a project, or what leverage of additional investment is expects with the $10 billion growth fund.

For the $2-billion building retrofit plan, the CIB indicated it would focus on large real estate owners, both public and private, to help them modernize their buildings and improve energy efficiency. However, residential homeowners – who have seen energy retrofit programs in the past – will likely require grants rather than loans to persuade them to do “deep retrofits,” says Corporate Knights publisher Toby Heaps, adding that a significant early push to scale up residential retrofits would be imperative to bringing the costs down through modularization, so that the momentum can be sustained without hefty public supports.

To pay for the green recovery programs, governments will rely on a mixture of new debt and tax measures. In Europe, there are proposals to tax internet giants like Facebook and Netflix, tax financial transactions, impose carbon border taxes, and extend carbon levies on shipping.

Ottawa could end tax breaks in a number of areas, particularly in high-GHG-emitting sectors, the Corporate Knights Building Back Better proposal said. It identified $240 billion in tax breaks per year, including $40 billion that amounted to “naked examples of corporate welfare, with almost no evidence of increased investment as a result.” As governments move to attract private sector investment in new electric-vehicle plants and other low-carbon industries, offering permanent tax breaks (rather than short-term grants) may prove fiscally unsustainable as clean industry supplants traditional industries as the locus of economic activity.

However, eliminating a tax break rarely results in a gain of $1 in revenue for every $1 “loophole” closed. These tax measures were put in place to help stimulate economic activity. If that activity ends as a result of the loss of a tax incentive, the tax revenue will also be lost.

Most of Europe’s green recovery will be financed through debt, taking advantage of rock-bottom interest rates that central bankers have said will remain in place for the next few years, at least. Canada’s Liberal government has also indicated that it’s prepared to borrow heavily to finance the recovery, though it has not released a budget that would provide such detail. (Finance Minister Chrystia Freeland is due to release a financial update this fall.)

There is growing interest in green bonds, which appeal to institutional investors and other asset managers that have made commitments to reduce the carbon intensity of their portfolios. Germany issued its first sovereign green bond in September; the €6-billion, 10-year offering was wildly over-subscribed. The EU plans to issue €225 billion green bonds to finance its recovery.

Last year saw a record US$263-billion in green bonds issued globally, up from just US$1 billion a decade ago, according to Moody’s Investors Service. The bond-rating service projects that up to US$225 billion in green bonds will be issued this year, despite a COVID-19-related slump in the second quarter.

There are two caveats concerning green bonds: some critics argue they provide little benefit in terms of financing costs and are essentially a marketing exercise, though there is emerging evidence that green bonds allow issuers to get even cheaper cost of debt. As well, there need to be clear guidelines as to what type of investments qualify as “green,” a standard-setting process known as taxonomy.

There are clear benefits to having an explicit connection between institutional investors and the sustainable projects they are financing, says the Climate Bonds Initiative’s Sean Kidney. But, he adds, a rigorous taxonomy is critical to ensure that green-bond issuers are truly financing sustainable activity. “That provides science-based guidance for what we have to do.”

As governments look to partner with the private sector to allocate capital to drive a zero-carbon transition, the need for better disclosure of carbon-related risks and opportunities is critical, including by any companies that want to have their bonds purchased by central banks. A network of central banks is currently pursuing further work to foster international disclosure and the standardization of data, says Henner Asche, who represents the German central bank in that exercise. He will also be joining the Corporate Knights panel on Wednesday.

Better disclosure is “a prerequisite for better climate-risk pricing,” Asche says. “Only on the back of better climate risk data can the financial system become a true driver of the transformation in the real economy.”

However, the business leaders in the “real economy” must be ready to change, says Sabrina Schulz, of Berlin’s Das Progressive Zentrum (The Progressive Centre). She notes that Germany and the EU are allocating hundreds of billions of euros to drive the structural transformation of the economy. “Right now, the structures are not there to absorb the money, to spend it wisely and to spend it on future-proof projects.”

Shawn McCarthy writes on sustainable finance and climate for Corporate Knights. He is also senior counsel for Sussex Strategy Group.

With the support of the Embassy of the Federal Republic of Germany in Canada.

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The first “green recovery” session on April 22 explored proposals for greening Canada’s building stock: Recovering Stronger with a Green Renovation Wave.

Canada’s buildings currently contribute to 13% of our national greenhouse gas (GHG) emissions. Based on today’s economics, we can reduce those emissions by nearly 100 million tonnes simply by upgrading the energy efficiency of Canadian buildings with mass retrofits. A nationwide program to encourage “deep retrofitting” of Canada’s residential, commercial and industrial buildings would put thousands of Canadians back to work and stimulate the economy at a time when it most needs help.

It’s a huge logistical challenge, but the good news is that it’s no longer a technology challenge, and it doesn’t have to be a financing problem.

The challenge and the opportunities

The payback from building retrofits is just one example of how focusing on green recovery strategies following the COVID-19 pandemic can be a triple-win proposition. Investing in more sustainable processes, technologies and industries will not only fuel an economic rebound; it will create more efficient and resilient infrastructure, throughout the country, that will virtually pay for itself. Plus, it will develop Canadian knowledge and leadership in a growing industry, building deep expertise that Canadians can sell to the world.

To help inform the discussion, Corporate Knights has launched a seven-event series called The Canada We Want: Planning for a Green Recovery. These virtual roundtables, running from April 23 to June 3, include top decision-makers from government, industry, finance, labour and the not-for-profit sector. The moderator is economist and climate activist Diana Fox Carney.

Here are the highlights of the first session, on how to create a “green renovation wave.”

Takeaways

“The window of what is viable has shifted,” said Toby Heaps, the cofounder and president of Corporate Knights. “Just two months ago, the federal government was budgeting $70 billion to address the climate crisis over the next 10 years. Suddenly, it finds itself anteing up $71 billion for wage subsidies over just the next three months.”

The federal minister of environment and climate change, Jonathan Wilkinson, introduced the event, noting that as the pandemic abates, “rather than simply looking to rebuild the economy the way it was before the pandemic, we need to question our assumptions about future sustainability and our physical and economic security. We have to build the economy we want and need.”

Ralph Torrie, a long-time energy consultant and a partner in the firm of Torrie Smith Associates, co-authored an article that underpinned this discussion: “Building Back Better with a green renovation wave.” This virtual manifesto proposes a bold economic-development strategy based on retrofitting Canada’s building stock.

“Rather than simply looking to rebuild the economy the way it was before the pandemic, we need to question our assumptions about future sustainability and our physical and economic security.”

–Minister of Environment and Climate Change, Jonathan Wilkinson

Torrie and co-author Céline Bak calculate that a 10-year program for thermally retrofitting and electrifying 60% of Canada’s dwellings would reduce GHG emissions by 45% and save Canadians fuel and electricity costs of $12.7 billion a year. The renovations would include conversion to heat pumps, controlled ventilation with heat recovery, insulating to achieve thermal leakage reductions of up to 70%, and a 20% improvement in lighting efficiency.

A global advisor on climate change and president of Analytica Advisors, Bak explained how forgivable loans could finance a renovation wave. “It will be a virtuous circle,” she said, comprising several players: the federal government, to provide loan guarantees; banks and credit unions, to underwrite the $40,000 renovation loans; the home or workplace owner, who would hire and pay the contractor; and an energy auditor to measure and verify the post-renovation benefits. The owner would submit this proof of energy savings to their bank, which would then be reimbursed by the government.

Sean Mullin, executive director of the Brookfield Institute for Innovation + Entrepreneurship, lent his voice to taking action. As a former advisor to the premier of Ontario, he urged government officials to seed recovery with additional long-term investments in climate issues. “There’s no reason Canadians couldn’t devote another 1% of GDP every year for the next 10 years to combating climate change,” he said. “We have the fiscal capacity to do that, even with all the borrowing we’re doing right now. We don’t have to be constrained by the fiscal anchors or mindsets of the pre-crisis environment.”

The audience of more than 300 industry and government representatives seemed to agree. In an online Zoom poll conducted during the session, 83% of participants supported Mullin’s call for an extra 1% budgetary investment in fighting the climate crisis. Only 5% disagreed.

Gordon Hicks, CEO of BGIS, Canada’s leading provider of real estate management services, including facilities management, confirmed there is huge demand for energy refits. “Given the rate at which technologies are advancing, we see opportunities in virtually every building that exists today,” he said. In fact, he believes Torrie underestimated the multiplier effect of this work: “For every dollar spent on energy efficiency, there should be a five times multiplier on GDP.”

“For every dollar spent on energy efficiency, there should be a five times multiplier on GDP.”

–Gord Hick, CEO, BGIS

 

Canadian Green Building Association CEO Thomas Mueller supported the need for a coordinated program of energy retrofitting. “We talk about 50,000 to 60,000 buildings needing to be renovated between now and 2030 to reach a 30% reduction in carbon emissions. It’s a significant challenge, but it’s not insurmountable.” He endorsed the idea that government funding must be tied to achieving specific outcomes – and ensuring those outcomes are sustained over time.

As head of sustainable finance for BMO, Jonathan Hackett endorsed the idea of the federal government leading a renovation revolution through forgivable loans. But as the banks gain more experience with lending against energy savings, he sees the private sector taking on more of the financing. “We can push this to the point where it really becomes self-perpetuating… with small subsidies rather than complete forgiveness.”

Amidst the panel’s support for a green renovation-focused stimulus, some concerns were raised about governments alone running such a crucial program. Said RBC board director Andy Chisholm, “We need solutions that are not susceptible to a change in government or a change in political attitude.” He expressed hope that retrofit loans could become a standard “asset class” that could be assumed by mainstream lenders, like mortgages or auto loans. Chisholm suggested the government’s role should be to subsidize the program structure, not individual transactions.

“We need solutions that are not susceptible to a change in government or a change in political attitude.” 

–Andy Chisholm, RBC

 

Derek Ballantyne, chair of the Canada Mortgage and Housing Corporation, supported the bankers’ call to create an asset class rather than a portfolio of projects. “Finding a financial architecture for this and how to get it kick-started is going to be the key around any federal involvement.” He suggested adding other incentives, such as insurance products, to attract private partners: “This kind of investment will not get done on government capital alone.”

Julia Langer, CEO of The Atmospheric Fund, chimed in as an expert commentator. Noting that the Greater Toronto Area–based fund has been successfully investing in retrofits for decades, she declared it’s time to shift the discussion from “what to do” to “how to do it.” “It is very complex,” Langer said. “We need on-the-ground mechanisms to bring projects together with capital, with suppliers – a local concierge service.” Her advice to the industry, government and lenders: “Don’t forget about that intermediation, which doesn’t [yet] exist in the country at a scale necessary to move the kind of dollars we’re talking about into play.”

Other questions were raised. Angela MacEwan, senior economist at the Canadian Union of Public Employees, when asked how Canada can ensure it has sufficient talent to conduct these renovations, said, “I think you have to work with building-trade unions. They provide a lot of training to their members.” She offered an example: the insulators’ union in British Columbia has added green training to its apprenticeship process.

She wasn’t keen about creating a blended public/private lending structure. “I don’t think this is the time for us to be making new instruments for people to profit off of the green transition. We need to be thinking about a just transition.”

While prominent players from a wide range of organizations agreed there is merit in launching a green renovation wave, many issues still have to be ironed out. But if sector leaders can come together to solve these problems first, Mueller suggested, Canada has an opportunity to export its expertise in this area, especially given the global footprint of Canadian real estate investors and pension plans. “Canada is a leader in green building,” he said. “I think we’ve missed a tremendous opportunity to take advantage of that so far.”

Added Mueller, “No country has figured out so far how to do large-scale retrofits. So this whole model around scaling it up, finding a way to finance it, to execute it, creates a whole value chain – and that’s something other countries would be very interested in. I think it is a tremendous opportunity.”

The post Roundtable weighs in on recovering stronger with a green renovation wave appeared first on Corporate Knights.

These conversations, hosted by economist and public policy expert Diana Fox Carney, will revolve around six themes: Buildings, Power, Transport, Heavy industry, Forests and Energy. Each session will begin with a table-setting analysis prepared by energy and environment expert Ralph Torrie, covering capital requirements, job creation, energy savings, emissions reductions, and the measures required to enable fast rollout.

Our goal: to inspire Canadian decision-makers to seize this opportunity to Build Back Better.

The 60-minute weekly roundtable series kicks off on Wednesday, April 22^nd (the 50^th anniversary of Earth Day).

The series will continue at 11 a.m. each Wednesday through to June 3.

Each event will include reactions and suggestions from expert panelists as well as an opportunity for attendees to make suggestions and ask questions. Following each discussion, updated proposals will be shared with all participants for further refinement to inform a synthesis document to be presented in June.

We hope you can join us.

Corporate Knights Presents schedule:

April 22:  Building Back Better with a Green Renovation Wave

Wednesday, April 22, 11 a.m. – 12 p.m. EDT: fresh analysis showing how a post-COVID green renovation wave could help our economy come roaring back, along with reactions from panelists and expert commentators.

Welcome from Hon. Jonathan Wilkinson, Minister of Environment and Climate Change

Discussion hosted by Diana Fox Carney, economist and public policy expert, featuring

April 29: Building Back Better by Topping Up our Green Power Sources, Storage and Connections

Wednesday, April 29, 11 a.m. – 12 p.m.

Welcome from Hon. Catherine McKenna, Minister of Infrastructure and Communities

May 6: Building Back Better by Electrifying our Cars, Trucks and Buses

Welcome by the Hon. Steven Guilbeault, Minister of Canadian Heritage

May 13: Building Back Better by Greening Heavy Industry

Join us this Wednesday, May 13, for our fourth roundtable on #BuildingBackBetter by boosting the circular economy, electrifying light-industry and decarbonizing heavy industry.

May 20: Building Back Better with Forests

Wednesday, May 20, 11 a.m. – 12 p.m.

May 27: Building Back Better by Fueling Innovation in the Energy Sector

Wednesday, May 27, 11 a.m. – 12 p.m.

June 3: Building Back Better: Moving Forward Together

On Wednesday, June 3, we held a one-hour finale of our Green Recovery series.

Welcome from The Right Hon. Navdeep Bains, Minister of Innovation, Science and Industry

Panelists

• Catherine Abreu, executive director, Climate Action Network
• Bruce Lourie, president, Ivey Foundation (and Member of the Taskforce for a Resilient Recovery)
• Tom Rand, managing partner, ARCTERN VENTURES
• Gregor Robertson, global ambassador, Global Covenant of Mayors for Climate and Energy
• Michael Sabia, chair, Canadian Infrastructure Bank
• Dianne Saxe, former Environment Commissioner, Ontario

Expert Commentators

• Céline Bak, president, Analytica Advisors
• Karim Bardeesy, executive director, Ryerson Leadership Lab
• Terri Lynn Morrison, director of strategic partnership, Indigenous Clean Energy (ICE)
• Dave Sawyer, chief economist, Canadian Institute for Climate Choices
• Ralph Torrie, senior associate, Sustainability Solutions Group and Partner, Torrie Smith Associate

For the latest articles, YouTube posts and reports on all things Green Recovery, check our Green Recovery reports page. 

Get our latest analysis, event videos and reports delivered straight to your inbox by subscribing to Corporate Knights’ Weekly Roundup newsletter

 

The post Event schedule: Building Back Better roundtable dates appeared first on Corporate Knights.