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Quarterly Issue 3 Special Report – A fair and sustainable recovery

A green recovery: finance after COVID-19

Author: ICAEW Insights

Published: 15 Sep 2020

Choices made in the aftermath of COVID-19 will shape society for decades to come. So, being clear about the objectives of a green recovery is vital to ensure actions lead to desired outcomes. Here, Michael Holder writes about the role that finance should play

When it comes to the financial sector’s role in a green, resilient recovery, data is everything. And there are few excuses not to use the Task Force on Climate-Related Disclosures (TCFD) framework to assess climate risks to investments, pensions and finances in order to glean that data. Particularly given the Bank of England – in a move that could bolster the UK’s ambitions of leading the world on green finance – next year plans to stress test the resilience of the largest banks, insurers and financial firms to climate-related risks. It will quickly become clear who has been caught napping.

“Where accountants perform an absolutely key role is assisting in the measurement of that risk, and putting it in terms that credit and risk assessment committees can understand,” says Sir Roger Gifford, chair of the Green Finance Institute, an independent body established last year to help unlock barriers to effective investment in the green economy.

“We’ve had decades of warnings of the threat to society posed by the way we’re handling our resources and belching fumes into the atmosphere, but until you measure that as a financial risk, you don’t get the massive amounts of capital that you need to shift peoples’ behaviour,” Gifford adds.

There are signs COVID-19 could accelerate such efforts. While oil companies and airlines have suffered huge losses during the pandemic, green industries such as renewable energy and electric vehicles have demonstrated their resilience to investors. And when Shell and BP announced multi-billion-pound write-downs on their oil reserve assets in the summer, markets didn’t recoil so strongly because they had already factored in that risk, argues theLondon Waste And Recycling Board’s James Close. 

“I think that’s a good signal for the trajectory of the accounting profession,” he says. “The work we do should look forward, as well as backwards, to factor in future opportunities and threats from the transition to a low carbon economy and how that can build resilience, particularly post-pandemic.”