The COVID-19 pandemic offered governments an opportunity to target their support towards a green recovery.
Today, high inflation linked to Russia's war of aggression in Ukraine is increasing the pressures on households and governments. But a long-term focus on the green transition must remain a priority: forward-looking and ambitious strategies are needed in every sector.
Recent estimates suggest that potentially environmentally harmful government support amounts to more than USD 680 billion annually around the world, including subsidies to fossil fuel production and consumption, and environmentally harmful agricultural support. This means that after only two years, these subsidies already cancel out the USD 1 090 billion of green spending to be spent over multiple years.
What’s more, the remaining 67% of recovery spending cannot be considered environmentally neutral: 14% is specifically tagged as mixed or negative for the environment, and the final 52%, while not tagged as having direct environmental impacts, is unlikely to be benign for the environment.
The OECD Green Recovery Database focuses on measures related to COVID-19 economic recovery efforts with clear positive, negative or “mixed” environmental impacts across one or several environmental dimensions.
It contains 1 494 measures with environmental relevance, spread over 44 countries and the European Union, and covers a range of environmental dimensions beyond just energy and climate, to include pollution (air and plastics), water, biodiversity, and waste management.
Governments should not scale back their green recovery plans in the face of other pressures. These can help to reduce emissions of greenhouse gases and the share of energy demand met with fossil fuels, and increase energy security.
Governments need to align across policies and sectors, and over time. The uneven spread of investment signals missed opportunities in key sectors such as agriculture, waste management and forestry, all of which could help drive sustainability and transformation.
Governments need to invest more in skills and innovation. Relatively few recovery measures focus on skills training and on innovation in green technologies. This also represents a missed opportunity, as more attention to measures that can drive green job creation, notably to compensate for job losses in other industries, can help to ensure a “just transition”.
Leveraging investment for infrastructure is a critical pillar of the low-carbon transition. Around USD 6.3 trillion of annual investment is needed until 2030 in energy, transport, water and telecommunications infrastructure, to sustain growth and increase well-being.
In recent years, trillions of dollars in capital have flowed into investments that are assessed using environmental, social and governance (ESG) criteria.
ESG criteria have helped raise awareness and strengthen corporate and investor commitments, but more work is urgently needed to ensure that ESG ratings are fit for purpose. Today’s ESG markets contain a huge variety – and at times divergence – in methodologies, performance metrics and product structures. There is still much to be done to make ESG investing fairer, more transparent and more efficient.
The COVID-19 pandemic highlights the urgent need to consider resilience in finance – not just in the financial system itself, but the role of capital and investors in making economic and social systems more dynamic and able to withstand external shocks. These include risks associated with climate change, which, beyond the pandemic, are perhaps the most pressing challenges to financial stability and resilience.
From air and water pollution to climate, agriculture and the circular economy, this collection focuses on all of the dimensions of the environment, environmental health and sustainability. It pulls together OECD analysis and data spanning a multitude of sectors and issues, many of which are being challenged in the context of the COVID-19 crisis and Russia's war of aggression against Ukraine.