Is it possible to re-fuel the post-COVID economy while also reducing emissions?

14 July 2020

The role of private organisations in matters of public health is evolving as the world grapples with COVID-19. In response to the pandemic global automakers and conglomerates have teamed up to manufacture ventilators in support of national health systems; independent distilleries have created hand sanitiser to bolster stretched supply chains and tech giants have established multi-million dollar funds to help small businesses and governments respond to the crisis.

And while there is much to celebrate in these novel partnerships, the scale and intensity of the response has triggered concerns that other key global issues - such as climate change - may be falling by the wayside as a result.

Yet if COVID-19 has provided a new blueprint for governments and corporates to come together to address public health and safety emergencies, could that blueprint be applied successfully to other issues? And in particular, could it be applied to the public health and safety challenge represented by climate change?


Public trust in corporate crisis contribution

Public faith in business has been tested in recent decades, measured notably by Edelman's annual Trust Barometer survey. In the 2020 study, 58 per cent of respondents said they neither trusted, nor mistrusted business. In a more recent survey on brand trust and the coronavirus pandemic, 62 per cent of the 12,000 respondents agreed that their country will not effectively make it through the pandemic without the support of brands and corporations. And 55 per cent of respondents believed that companies are responding more quickly and effectively to the pandemic than the government.

Further, the survey showed that a key public expectation of corporates was not to act alone. 90 per cent of respondents expected corporations to partner with governments and relief agencies to address the crisis, with 86 per cent agreeing that corporates should provide a safety net, stepping in where they are needed to fill gaps in government response.

"Now more than ever there are opportunities for corporations to partner with governments," says Scobie Mackay of Macquarie Commodities and Global Markets. “As an increasing number of corporates make ambitious voluntary commitments to decarbonisation and sustainability, there are real opportunities to leverage fiscal stimulus to accelerate the energy transition. This partnership can fuel the economy and reduce emissions; it doesn't have to be a choice between the two."


The government balancing act

For governments building out their responses to COVID-19 it is imperative that short-term fiscal policy does not come at the cost of responsible long-term economic management and environmental impact. This can be challenging, particularly in election years or for governments already under significant economic strain.

Long-term stimulus packages that help expand supply of emission-reducing projects to meet increasing energy demand will play an important role. To do this, governments must recognise that strong economic performance does not conflict with progress on climate change.

"Governments have a role to play in making investment in the clean energy transition more attractive to corporates as part of their coronavirus recovery strategies."

Gavin Templeton, Green Investment Group, Macquarie

"By reducing financial risks, governments can work in partnership with corporates to scale up new technologies such as hydrogen and carbon capture while further reducing the cost of already prevalent energy platforms such as wind and solar," adds Templeton.

Solar photovoltaic power generation is one such example to showcase the benefits of increased investment and government support. Once deemed inefficient and expensive to construct, over time costs for both the construction and power generation of solar have reduced significantly. Now, more frequently than not, solar is less expensive than most fossil-fuel options, even without subsidies or financial incentives.

South Korea, a country regarded as having one of the most effective initial responses to the novel coronavirus appears to be carving a green economic opportunity out of the COVID-19 shock. Early in 2020 South Korea's ruling democratic party won an absolute majority in their parliamentary elections, enabling a path for their proposed "Green New Deal" agenda to progress.

"South Korea has made this Green New Deal the centerpiece of their future economic recovery. It includes provisions for investments in renewable energy, taxes and even a government backed agency to support worker transition to the green economy," says Templeton.

However, it has not been without challenges. At a similar time to the Green New Deal announcement it was reported that the state-owned Korea Development Bank had approved a package of emergency loans for Doosan Heavy Industries & Construction, the country's largest coal plant manufacturer. This need to balance the short-term with the long-term has long been at the crux of the energy transition dilemma.


Are corporations uniquely positioned to fight climate change?

Mackay believes that COVID-19 offers a unique opportunity to accelerate participation and investments in the energy transition for the long-term. “Financial institutions and investors are increasingly responding to shareholder pressure by pricing in the future cost of climate risk. This is manifesting in cheaper capital for businesses that are climate-aligned," adds Mackay. “This presents a unique opportunity and tangible incentive for corporations to access, use and deploy capital toward the climate transition – particularly when combined with appropriate green recovery incentives from the public sector."

The global financial shock of the pandemic has also provided corporations and investors alike a stark reminder of the implications and financial risks of climate change.

“While the private sector can make charitable efforts to address these issues, for corporations to make long-term scaled contributions, care should be taken to ensure public-private partnerships are fundamentally aligned with corporate purpose and profitability. When this happens, risk can be lowered and capital formation can increase dramatically," says Brooks Preston, of Macquarie Infrastructure and Real Assets (MIRA). “Ongoing private participation can also help reduce fiscal pressure on public entities, thus providing public organisations an additional incentive to accelerate sustainability and resilience investments."

Investing in sustainability has both good short and long-term benefits, adds Preston. “But to really improve the chances of combating climate change there needs to be increased coordination and collaboration between governments and corporations. As seen with the coronavirus response, this ultimately provides better outcomes on a social and financial level for all stakeholders."

Gavin is Head of Sustainable Finance, Green Investment Group, responsible for leading the Climate Finance Advisory function, which works with governments globally as they seek to transition to a low carbon economy. He also works on the development of Green Investment Group’s Green Investment Principles, which sets a benchmark for integrating green impact into investments, having previously led the team that created them.  

He supports Macquarie Group CEO, Shemara Wikaramanayake in the wider global green investment movement in her roles on the Global Commission on Adaptation and the Climate Finance Leadership Initiative.  

Having worked in the financial and commodity markets for over 25 years, Gavin began his career at BP before moving to Morgan Stanley, Rabobank and VTB Capital. Over his career he has worked in roles covering investment, sales, marketing, business development, origination, trading and analysis.

Gavin is a member of the Founders Committee for the new Green Bank Design Platform which is expected to launch in 2020.  He is also a board member of City of London’s Green Finance Initiative and an internationally recognised leader in sustainability. He has worked on the sustainability agenda since the beginning of the European Emissions Trading Scheme and United Nations Clean Development Mechanism, as well as financing renewable energy and emission reduction projects across Europe, Africa, Asia and the Americas.   

Brooks has been working with MIRA since December 2017 with a focus on sustainable asset management, product development, and strategy.   

Before joining Macquarie, Brooks served as Vice President and Head of Investment Funds for the Overseas Private Investment Corporation from 2014 to 2017 and served on the Executive Management Committee of the bank.  He also sat on the Investment Committee of the bank which deployed more than $8 billion during his tenure in project finance, corporate debt, fund commitments and insurance contracts.   As Head of Investment Funds, Brooks was responsible for fund commitments that held more than 250 impact investments in the infrastructure, microfinance, energy, healthcare, financial services, agriculture, credit, housing and real estate, and other sectors.    

Prior to OPIC, Brooks was the co-managing partner of the Virgin Green Fund Emerging Markets and a member of its Investment Committee. VGF EM focused on growth and infrastructure investments in the sustainability sectors in Central and Emerging Europe. Prior to founding VGF EM, Brooks was a Principal at Wolfensohn & Company, an emerging market private equity impact fund where he focused on direct investments in low carbon energy businesses in global emerging markets. From 2003 to 2008, Brooks had senior management roles at BP plc, including head of global business development and M&A for BP Solar in the Alternative Energy division, and chief of staff to a Group Vice President in the Refining and Marketing part of the business.

Before attending business school at Stanford Graduate School of Business, Brooks was Chief of Staff to the Under Secretary of Natural Resources and Environment and Acting Deputy Under Secretary for Forestry at USDA in the Clinton/Gore Administration. He wrote 15 environmental laws passed by the U.S. Senate as Professional Staff Member at the Senate Committee Agriculture, Nutrition and Forestry, where he covered forestry legislation for the U.S. Senate.  Brooks has a BA from Dartmouth College (Geography & Environmental Studies) and studied abroad in Nairobi, Kenya.   

Scobie Mackay is a Managing Director within the Commodities & Global Markets (CGM) Business at Macquarie, based in Houston. 

Amongst other things, he is working with desks in various centers on the build out of Macquarie’s international voluntary carbon offset business.  He joined Macquarie in 2015 in Singapore in the Commodities Markets & Finance team looking at structured physical commodity and structured commodity-linked financing transactions before moving to lead the Supply Chains Solutions team in Houston in early 2017.

Prior to joining Macquarie Scobie headed the Commodity Traders & Agribusiness Trade Finance Team for Standard Chartered Bank in Singapore.  Scobie had been a lawyer before joining Standard Chartered Bank in 2010, holding positions with Norton Rose Fulbright in their Paris office and, earlier, the Australian Federal Government in both international and domestic law roles.

Scobie is an admitted solicitor in both England and Wales and Australia and holds Master of Laws (International Law), LLB(Hon) and BSc degrees from the Australian National University and is currently an MBA candidate at the University of Oxford.  

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