Governments have power to deliver climate action

Oksana Patron

11 January 2023

Governments must lead on climate action as they have power to mobilise and influence private capital and consumers through financial incentives.

According to Janus Henderson’s head of ESG Strategy and Development, Adrienn Sarandi, and ESG Content Manager, Bhaskar Sastry, climate change cannot be tackled by free markets and corporates alone, and governments need to develop a detailed strategy for decarbonisation to provide a clearer outlook for consumers and companies and to create long-term opportunities for investors to finance the transition.

Janus Henderson said that one of the strongest policy levers a government could introduce was mandatory and sufficiently high prices on carbon emissions that were appropriate for different sectors and countries at various points in their economic development.

Additionally, investors and asset owners were applying more pressure on companies with respect to their lobbying activities and they would want to see companies publicly disclosing “where, how much and to whom they give their lobbying money”.

According to the manager, there was also a need for more efforts to be put to redirect subsidies towards activities that helped tackle climate change and environmental challenges, and away from fossil fuels.

At the same time, the urgent need to increase investments in clean energy to $5 trillion per annum signals a very large opportunity for investors.

“Crucially, we must find an answer to how clean technological infrastructure (charging stations, grids, pipelines) can be funded at scale while inflation is rife and the developed world’s priorities are shifting towards the preservation of living standards,” Sarandi and Sastry said in the report.

“Those that expected governments to largely fund the transition with cheap government debt will need to think again. The price of government debt has risen sharply, and the developed world is already drowning in debt. Governments cannot pay the full cost of the transition, and they shouldn’t.

“If they tried, their further ballooning debt levels would simply add to inflationary pressures. What they should do is expand carbon pricing regimes, recycle revenues raised from carbon taxes and redirect subsidies faster once the energy crunch subsides.”