The European Commission ended up as being a champion as most of the announced fiscal spending will be tight to green projects
One of the outcomes of the coronavirus pandemic is that governments around the world engaged in fiscal expansion. This is a trend in the rest of the developed world, but what the European Commission is trying to do is truly unprecedented. The stimulus is projected to be spent over the next two years and sums about €750 billion (approximately $890 billion).
What is interesting is that the investment is structured in seven different areas considered as priority ones. Moreover, out of those seven areas, 37% of the funds target climate-related expenditures. We talk about sustainable transport, clean energy technologies or energy-efficient building renovations.
Over $450 BN worldwide in energy-related stimulus packages
The European Commission’s vision, as stated in the new Green Deal, is one thing. However, the trend that started in Europe is quickly spreading in the rest of the developed world. Also, even emerging and frontier markets have become more energy-concerned lately. As such, renewable energy projects became more popular in such markets too.
To have an idea about the new directional shift, at the end of October 2020, governments from around the world have pledged over $450 billion to green projects. Grants, loans, or exemptions – all related to green projects.
Here is how it works, using an example from Europe. The COVID-19 pandemic was responsible for many companies almost running out of business. The travel restrictions, necessary under the pandemic, affected airlines‘ bottom line.
As such, the government stepped in and in most of the cases, bailed the companies out. However, when doing so, they imposed “green” conditions for bailing out the troubled airlines (e.g., increased share of using biofuels). This was the case for Air France-KLM, Swiss Air and Austrian Airlines.
On top of the increased spending in the “green” areas, ESG (Environmental, Social and Governance) has an increasing role in the way corporations do business. Also, in the way corporations issue debt.
For instance, we have seen an increasingly large number of corporations issuing green bonds. The idea is that it is easier to find buyers for such bonds in companies that want to “increase” their green footprint.
Think of Tesla. It sells green certificates to other auto producers that are forced to meet regulatory compliance. Something similar happens in the fixed-income market.
It is just the beginning. The race to green has begun.