The Green New Deal: What Is It and Why It Should Be Embraced by Investors

By Angus Wauchope

By Angus Wauchope

 

It has become clear that climate action is both essential and in demand. In the past month, the UK experienced its warmest ever winter day (a new record exceeding 20°C in February). School kids have been striking across Europe against a lack of climate policy and progress towards climate goals. We also know from the latest evidence from the UN’s climate science experts that to respond to the global problem and limit climate change to 1.5°C will require “rapid, far-reaching and unprecedented changes”.

So, what can the unprecedented change look like? And what role can investors have? The answer may come in the form of another February event. The emergence of the USA’s Green New Deal.

What is it?

The ‘Green New Deal’ (GND), is an ambitious resolution (which requires congress and senate approval before being presented to the President) which aims to use state-led programs to target both the climate crisis and economic inequality simultaneously. It recognises the drastic economic benefits and quality of life improvements that resulted from ending the great depression through public investment from the early 1930’s and throughout WW2. It uses this blueprint to propose radical action against climate change while creating widespread inclusive economic and societal benefits. Overall, The GND is based around five key goals:

To accomplish its goals, the GND aims to do away with incremental change and mobilise the federal government to drive investment towards, among others, upgrading to sustainable infrastructure, achieving 100% renewable energy generation, building an energy efficient smart power grid, upgrading efficiency of all existing buildings, spur massive growth in clean manufacturing and building a new public transport infrastructure.

Much like its 20th century predecessor, President Roosevelt’s New Deal, which used a suite of reforms and investment to future proof the US economy while dragging it out of the great depression, the GND advocates similar state-led mechanisms, only adapts them to target the climate crisis as well as society and the economy.

The end goal of this hopes to be inclusive green growth based upon principles of equality, fair distribution and environmental sustainability.

Opposition or Opportunity?

Initially the GND received a mixed response in Washington both due to affordability and ideological worries. But now with 100 congresspeople sponsoring the resolution, positive global attention rapidly growing, and recent Yale research finding a majority of registered US voters support the principles of a Green New Deal, this seems set to change.

Despite growing support, prominent criticism is united on the fact it would be too expensive for the US tax payer. Response by key proponents of the GND, such as Alexandra Ocasio-Cortez, advocate accounting for the future environmental and social costs of inaction, deficit spending and tax reform. Although the deal is not yet precise enough for an accurate estimate of cost, undoubtably it will be huge. Therefore, questions remain as to where all the funding for this investment can come from.

A way forward and to compliment the required state funding, is to consider the large role for private investment, which often receives less attention than it deserves. As demonstrated in Spain’s recent green infrastructure plans (see below) funded largely by green bonds, the potential for public-private collaboration is huge.

Green investment is a rapidly emerging growth area. In 2018 alone new green bond issuance grew to more than $182.2 billion worldwide, while sustainability linked loans surged up 677% to $36.4 billion. Including all environmental investment this is estimated at $12 trillion in the US. It is therefore clear that the appetite for sustainability linked investments already exists, in vast numbers and just requires certainty and direction from political action.

As highlighted in a recent KKS blog millennials are already demanding much more focus on ESG factors when investing their assets. So, with shifting demographics and investment potential growth both moving towards sustainable ends, is it not time this was embraced?

What’s the hold up and what can be done?

While congress is held up on federal costs and the potential for liabilities to be passed onto the taxpayer, greater attention is needed on how capital can be directed towards the climate goals that underpin the GND. A collaborative effort between investors and the government will help both groups achieve far beyond what they could achieve alone. 

Those who can identify with the goals and vision of the GND can take inspiration from this potential partnership. By embracing the rhetoric behind the deal, politicians will be inspired to support the resolution while investors and companies can find opportunity in the common ground this creates.

If we truly want to transform the energy system in the next couple of decades and avoid the worst effects of climate change, politicians must work towards implementing the type of strong and effective climate policy that society is demanding. As shown the investment potential is evident, as is the next generation’s support. Is political will the bridge needed to energize companies and engage investors? If so, ‘The Green New Deal’ can be the vehicle for this transition.