Nature has suffered a pandemic-like crisis for over a century. Human activity has accelerated the rate at which plant and animal species are becoming extinct by a factor of over 100, and paved the way for a growing climate crisis. To date, the global economic response to the COVID-19 crisis is set to reinforce this trend. However, there is an opportunity to act decisively now, prevent irreversible damage to nature and dramatically lower future costs of protecting the planet. In solving one crisis, we cannot ignore another.
Across 16 major economies, announced stimulus packages will pump approximately $2.2 trillion directly into sectors that have a large and lasting negative impact on nature. These flows present an opportunity to support these sectors through the current COVID-19 crisis, while also increasing their sustainability and resilience in the face of the parallel climate and biodiversity crises.
So far, government responses have largely failed to harness this opportunity, disregarding the broader sustainability and resilience impacts of their actions. The Green Stimulus Index, produced by Vivid Economics in partnership with Finance for Biodiversity (F4B), shines a light on how much money is flowing where and what this means for nature.
In 13 of the 16 countries considered, potentially damaging flows outweigh those supporting nature. Of the more developed countries, the US represents one of the largest risks, with $439 billion providing unrestricted support to sectors proven to be environmentally harmful in the past amidst several rollbacks on environmental regulation. Russia and China also score poorly, with the latter providing new subsidies for the automotive industry and easing of permits for coal mining.
Developing economies dependent on environmentally-intensive sectors and without strong regulatory systems have perhaps the hardest task ahead. Indonesia, Mexico and Brazil are pushing response efforts likely to reinforce brown trajectories dominated by highly carbon intensive industry and energy sectors and unsustainable agriculture practices. Their packages include deregulation of the logging industry as well as unconditional subsidies to fossil fuel consumers.
Packages in parts of Western Europe offer more promise with at least a portion of spending in France and the United Kingdom likely to be nature-friendly. France and the UK benefit from less environmentally-intensive economies and their decisions to retain more stringent regulations and policies. At the same time, they have had some success in shaping individual stimulus measures to drive nature-friendly outcomes.
Green Stimulus Index
Source: Vivid Economics using a variety of sources.
Yet much of the detail underpinning stimulus packages is still to be released. A number of countries cluster around 0 on the index, and few reach close to the highest or lowest possible scores. Large pools of funding are “neutral” for the time being, but have the potential to swing either way. With targeted measures, governments can direct these marginal funds firmly towards the protection of nature and their own resilience.
Bailouts are one such measure that has received considerable attention in the media. Governments should view bailouts as public investments that deliver public benefits. While these benefits must clearly include stability of public services, employment and supply chains, they should also secure a transition to sustainable and resilient growth in the medium term. Bailouts can achieve this by conditioning public support on implementing specific environmental improvements to operations and procurement, such as committing to high-integrity environmental offsets, enhanced nature-related financial disclosures and increased supply chain transparency.
While governments are coming under increasing scrutiny over their stimulus packages, little attention has been paid to the role of international financial institutions. Unprecedented fiscal crises in developing countries are driving large international rescue packages. As these governments grapple with high debt, commodity price volatility and capital flight, economic instability will spill over into nature. International financial flows – including loans, debt relief and liquidity support – can be channelled to vulnerable sectors to both rescue faltering economies and support their fragile transition to sustainable and resilient growth. In fact, a focus on ensuring adequate environmental conditions in only a few sectors – especially agriculture – can achieve enormous positive results for people and nature.
The response to date offers some lessons to be learned and warnings for the future:
- Stimulus measures must compensate for weak environmental regulation: Stimulus alone is not enough. In most countries, it will reinforce a destructive trajectory of high emissions and loss of nature. Sustainability must be hardwired into measures themselves to counteract this.
- Environmentally-intensive economies must work the hardest: The spotlight is on countries heavily reliant on extractive or carbon-intensive sectors. These countries have had the biggest impact on nature in the past and carry the highest risks for the future.
- Conditional bailouts are effective and feasible: Bailouts can be a powerful tool to both support business and accelerate the sustainable transition. Experiences in France and Austria show that governments and corporations can meet on common ground.
- Rolling back environmental regulation must be avoided: Deregulation offers society no say in how the economy recovers, paving the way to make the same mistakes again. The long-term costs will outweigh any short-term gains.
- International financial institutions are not exempt: For many emerging markets, foreign aid will be the main source of funding for recovery packages. The same principles and the same scrutiny must apply.
Over the next few months, governments will shift from rescue stimulus, focussed on health and social care, to recovery stimulus, supporting the broader economy to bounce back. By shaping recovery packages around these recommendations, they have the opportunity to take a substantial step forward, rather than back to business as usual.
Follow the update of Greenness of Stimulus Index.