The 155th mBank-CASE seminar: Financing sustainable growth in Europe
The 155th mBank-CASE seminar: Financing sustainable growth in Europe: a discussion against the backdrop of the European Commission Expert Group’s report.
The 155th mBank-CASE seminar was devoted to the subject of financing sustainable growth, which is becoming one of the European Union’s main long-term priorities. This step follows the identification of the general development challenges appearing over the next few decades (contained in the Energy and Climate Framework 2030). The search for new sources of financing and the reorientation of existing ones is a manifestation of the transition from an ideological or visionary stage to practical instruments for implementing it. This is the nature of the report prepared by the Expert Group appointed by the European Commission at the end of 2016. The recommendations published in January this year (the report titled Financing a Sustainable European Economy) show the complicated, comprehensive but also achievable nature of the transformation of the existing model of economic growth toward what is described as sustainable development. This report served as the point of departure for the experts appearing at the seminar.
Is sustainable growth a passing fad?
The first of the experts, Dr. Maciej Bukowski, president of WiseEuropa – the Warsaw Institute of Economics and European Studies, and also a member of the University of Warsaw faculty, began his presentation by naming and discussing the megatrends that are of fundamental significance for economic growth on a global scale. These three megatrends are: 1) technological progress, leading to a drop in production costs and the dissemination of key technologies; 2) global demographic changes, such as rapidly growing world population, aging and urbanization (populations moving from rural areas to cities); and 3) resource pressure: along with the growth in population we use increasing amounts of resources (even though we use them more efficiently). Resource pressure is occurring in conditions of climate change, shrinking water resources and growth in CO2 emissions. Significantly, there are intense interactions between the megatrends of demography, resources and technology, which is why it is so important to engage them in a balanced way in pro-ecological processes.
An adequate response to the challenges in the area of sustainable growth, Dr. Bukowski said, won’t be possible until at the EU level the taxonomy of sustainable development is unequivocally made uniform. The universal pattern of ignoring environmental problems today results to a large degree from the fact that neither of the two Polish translations for the term “sustainable growth” (which the speaker believes cover slightly different concepts) includes the concept of complete protection of ecological balance, which is both a means to sustainable growth and an end in itself.
Moving to the question of public policy toward long-term challenges, Dr. Bukowski stated that in analyzing three aspects of them (awareness, strategy and implementation) in various countries, he arrived at the conclusion that Poland (and the rest of Central Europe) is significantly worse in this regard not only compared to the U.S., Canada, Western Europe, Japan and South Korea, but also China. Paradoxically, as a result of its strategy of moving away from nuclear energy and toward the permanent use of coal in energy, Germany shouldn’t be a reference point for us, at least in the short term. The irreversibility of the megatrend processes and the legitimacy of reducing CO2 emissions regardless of EU policy is a fact, which is why it is necessary to participate in the creation of a European market for low-emissions technologies, supporting mechanisms of solidarity, already today.
A multidimensional action plan for sustainable finance
Dr. Mieczysław Groszek, a member of the High-Level Expert Group on Sustainable Finance and one of the authors of the report published in January, Financing a Sustainable European Economy, which all of the panelists discussed, began his presentation with an explanation of why the European Commission appointed the High-Level Expert Group. The body’s main task was to present recommendations leading to: 1) integrating sustainable growth into the fiscal policy of the EU and member states; 2) adjusting EU policy to the most important legislative frameworks; 3) financing the gap in additional investments in the amount of EUR 180 billion a year that is needed to keep global temperature growth below 2 degrees Celsius.
After a detailed analysis of the status quo, the authors of the report formulated 27 recommendations grouped into four blocks: key recommendations; cross-cutting recommendations; financial institution and sectoral recommendations; and social and broader environmental sustainability recommendations. The most important included establishing a common sustainability taxonomy at the EU level; upgrading disclosure rules to make sustainability risks transparent; developing and implementing official European sustainability standards and labelling, starting with green bonds; establishing an EU observatory on sustainable finance to support evidence-based policy-making; and including sustainability in the supervisory mandate of the European supervisory agencies and extending the horizon of risk monitoring.
On March 22 this year, the Commission presented a preliminary action plan for sustainable finance based on the observations and recommendations contained in the report. As Dr. Groszek stressed, the true test of the EC and EU’s determination won’t be so much the scope in which concrete recommendations are adopted as the degree to which sustainable finances become a permanent element of European markets and economic policy. If their determination is strong, over the long term a new economic order will emerge.
The financial sector and environmental policy: neutrality doesn’t mean indifference
In the final presentation of the seminar, Dariusz Winek, a member of the EC’s Support to Circular Economy Financing Expert Group (where he represented the Polish Bank Association) focused on the process of integrating the financial sector into pro-ecological activities.
He believes that the basic discrepancy in ecological perspectives on the macro- and microeconomic scale concerning sustainable finance remains significant, though even among investors, there is increasingly evident recognition that sustainable assets, from the environmental and social perspective, mean assets generating lower risk for the environment and society over the long term, and for the financial sector, assets that are resistant to loss of value over the financing horizon.
The speaker discussed the negative example from Poland of the financing of renewable energy sources, where the credit risk was disproportionate to the long-term environmental risks. He pointed out that systems of public support for investments in environmental protection may increase returns on activities with low environmental costs at the expense of other types of activity generating negative environmental externalities over the long term. He also noted that the support systems are usually unstable over time, while the applications appearing on the market (technological or in the area of companies’ business models) may lead to the growth of market imbalances. He also pointed out that one problem is fear of new technologies, whose functionality and standards are difficult to compare to current ones; there is also a lack of knowledge about the risk system and transparency among companies and investors.
In summing up his presentation, Mr. Winek admitted that the EC Expert Group report published in January is the first such high-level document that will certainly make it possible to systematize stakeholders’ knowledge, and operational recommendations for the financial sector, if they appear, will have a positive effect on the growth of green investments.
After the presentations there was a lively discussion between the speakers and the audience. There were also requests from participants to expand on certain issues presented during the presentations, as well as completely new themes, such as the question of managing increasingly limited water resources.
