Abstract
European governments are struggling to regain economic strength in the coronavirus pandemic as in many countries the number of new infections seems to gradually subside. Growth rates deep in the red call for a reconstruction programme when the crisis is finally manageable and economic activity can resume. Amidst this, there are again influential groups that claim “this is not the time to insist on strict climate protection goals”. On the contrary, the ongoing COVID-19 crisis has clearly illustrated what climate disasters, often occurring locally, could do to the life of citizens. The reconstruction programme needs to initiate the great green transition. The transformation from a climate-distorting to a climate-protecting economy opens up investment opportunities and points to financing needs comparable with those necessary for the rebuilding of the European economy after World War II. The great green transition is a unique chance to pursue policies for a new and sustainable growth regime.
Highlights
European governments are struggling to regain economic strength in the coronavirus pandemic as in many countries the number of new infections seems to gradually subside
European governments are striving to meet the ambitious goals of the Paris Climate Agreement of 2015
With stricter regulation and higher CO2 emission pricing, there is a risk that the legacy investments of financial institutions in the fossil fuel sectors will be devaluated, a risk that increases with stricter regulation and rising CO2 emission pricing
Summary
European governments are struggling to regain economic strength in the coronavirus pandemic as in many countries the number of new infections seems to gradually subside. The transformation from a climate-distorting to a climate-protecting economy opens up investment opportunities and points to financing needs comparable with those necessary for the rebuilding of the European economy after World War II. Financial institutions face huge innovation risks when funding the great green transition. If the financial industry immediately switches to funding only innovative, yet not financially self-sustainable, climate tech firms with new technologies, it faces the typical first-mover risk in completely new, innovative and unknown areas of business. Redirecting innovation policy and innovation finance, large scale issuance of green bonds, active fiscal policy, supportive monetary and credit policies, fair transitions of employees in old industries in the labour market and better insurance policies are necessary to allow a faster transition to a low-carbon economy
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