Abstract
The Juncker Plan, along with other measures of economic policy, is an attempt to rectify the fall in demand of European investment, raising investment and innovation capacity of enterprises, in a framework of perceived excess of austerity policies and some progress towards a new European industrial (and fiscal) policy. The Plan indicates the need to reconstitute investment profitability and the importance of environmental policies. Green growth policies have become particularly popular in the last decade, but their effects could be much greater because of the growing importance of intangible investment and the industrial changes, such as those expected from the EU program “Industry 4.0”, the growing e change as market failure “global”, and because the green technologies seem to offer the prospect of a new technological, industrial, and research-driven paradigm. The UN Report “Better Growth”, “Better Climate” main thesis is that climate mitigation policies may not have a negative impact, but can even represent a stimulus for economic growth. The idea is that it is possible to combine growth and climate objectives by increasing resource efficiency, by investing in infrastructure and promoting innovation in urban policies, land use and energy sources.
The concept of sustainable development appears to be one of the drivers of green financing, with a growing influence on public awareness of a broad accountability set of criteria to judge governments and corporations on ethical grounds. In many cases, green projects lack an articulated financial structure that allows them to be competitive in attracting financial resources: they may be too small, too specialized, dependent on very specific and risky sources of income, or, due to their public or quasi public nature, not capable to generate appropriable cash flows that may permit risk sharing through concessions or similar private public partnerships. The role of the government in improving this situation is thus expandable on a number of fronts and may prove to be decisive.
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Notes
- 1.
The GRI was founded in 1997 by the Coalition for Environmentally Responsible Economies in partnership with the United Nations Environment Programme, https://www.globalreporting.org/reporting/g4/Pages/default.aspx
- 2.
In addition to direct issuance, and following the example of the international Development Banks, governments are also engaging or contemplating actions to develop the market for green bonds by supporting deal flow and aggregation, and creating the enabling policy and risk environment. Some of these actions are the operations of Credit Enhancement/Guarantees/De-Risking, whereby the credit rating of the bond is improved by a partial or total guarantee provided by the government (E.g., US Department of Energy Loan Guarantee program). Public entities can insure Power Purchase Agreements (PPAs) on renewable energy generation projects as well as provide credit enhancement wraps for Collateralized Debt Obligations (CDOs) of project loans to address political and other market risks and first-loss (default) risk. Backstopping operations are also being used, whereby governments purchase sub-tranches of subordinated debt from early bond issuances to improve the risk profile of bonds by temporarily taking some first-loss layers from early issuances which would serve to lower their price and help the market gain familiarity. The government could also insure the credit or debt of the bond issuer. (E.g., European Investment Bank offers credit enhancement product targeted for clean energy). Governments also can, as demonstrated in the case of the state of Pennsylvania, purchase and securitize energy efficiency loans to recycle capital for further lending. As already experimented in the US, tax preferencing, in the form of total or partial tax exemption, can also be an effective way of developing a green bond market.
- 3.
A consortium of investment banks—Bank of America Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Bank, JPMorgan Chase, BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank and SEB announced support for the initiative after it was made public through the website of CERES, a leading NGO in the field of collective action for policies toward climate change.
- 4.
In this sense, there may be an important element of additionality incorporated in green bonds, in the sense that their impact may be more valuable if it is considered with respect to a counterfactual, e.g., the possibly harmful projects that would be pursued by the same issuers in an alternative scenario.
- 5.
See, for example: Green Bond, Sixth Annual Investors’ Update, 2014, The World Bank-Treasury: “All World Bank bonds support sustainable development, poverty reduction and inclusive growth. They fit well with investment strategies that incorporate Environmental, Social and Governance factors into the decision-making process”.
- 6.
For more information on WB sustainable development projects see:
http://treasury.worldbank.org/documents/IBRDInvestorPresentation.pdf
- 7.
Due diligence concerns all activities of information collecting and analysis on the structure and performance of an object of purchase on behalf of the purchaser. In the case of an investment, due diligence aims to enable the potential investor to make informed decisions concerning the risks and the opportunities that the transaction offers. Due diligence assignments is generally combined with assurance, a process aimed to focus on the credibility of the information reviewed during the due diligence assignment, whose lack may result in the abandonment of the potential investment.
- 8.
Sustainable Prosperity is a national research and policy network, based at the University of Ottawa. SP describes itself as focusing on market-based approaches to build a stronger, greener, more competitive economy and in bringing together business, policy and academic leaders to help innovative ideas inform policy development.
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Paganetto, L., Scandizzo, P.L. (2016). Industrial Policy, Investment and Green Growth. In: Paganetto, L. (eds) Stagnation Versus Growth in Europe. Springer, Cham. https://doi.org/10.1007/978-3-319-26952-8_7
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