Climate change: Making markets greener

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This month has played host to both National Ethical Investment Week and Social Enterprise Day. Together with Fairtrade Fortnight, these are nationwide efforts to get us using our roles and power as economic actors to make changes to how markets work, to make them fairer, greener and serve broader social objectives.

CAFOD knows that this kind of action can work. In 2008, over 600 CAFOD supporters, together wielding £54 million worth of investment, contacted their pension funds as part of our Unearth Justice campaign to ask them to push the mining companies in which they invest to adopt and observe social and environmental standards.

CAFOD is a founding member of the Fairtrade Foundation. Consumers spent an estimated £1.58 billion on Fairtrade certified products in 2007. Fairtrade now accounts for over 20 per cent of market share in certain products in some countries.

The financial and economic crises have put thinking about how markets work and to what purpose at the top of the political agenda. Are the politicians listening?

In Pittsburgh G20 leaders, agreed to debate and decide shared objectives for their own (and de facto for global) markets and how to define a policy agenda that would deliver them.

So far, their efforts to fix the system show pretty limited vision – measures to restore stability to banks and to put the economy, and the financial sector in particular, back in profit as quickly as possible. These may well be necessary actions, but they fall well short of tackling the structural problems in global markets.

To take the example of the renewable energy sector. Financial markets are not geared to support a shift to renewables. Renewables projects require large upfront investments, these are also seen as especially risky by investors because the technologies are relatively new. As a result, the sector struggles to expand and we are unlikely to reach the 100 per cent renewable energy sector, Scientific American tell us this week is possible.

The right policy framework could change this. To begin with it can provide stability – thus reducing risk. One of the question marks hanging over the renewables sector is what kind of deal will come out of the (now post-) Copenhagen climate change negotiations? This will affect the price of carbon and therefore the profitability of investing in fossil fuels.

Politicians can also increase the incentives to invest in renewables. For example, guaranteed higher “feed in” tariffs for renewables can  make the sector a more attractive prospect.

More important, the current price of carbon is too low – meaning that there is little reward for taking a high risk investment in renewables. By fixing the current carbon market systems (emissions trading and off-setting), politicians can ensure that the right (higher) price for carbon is set.

Other more innovative proposals are for a green public bank and green bonds to be established so that the government can help to leverage investment for the sector.

Making markets greener is one way to make markets work better for men and women in low income countries, a topic which has received no real attention from the G20.

Progress by politicians at and beyond the Copenhagen conference and more radical thinking within fora such as the G20 will be key in meeting the objectives for markets, so clearly expressed by ethical consumers and investors.

Posted by Christina Weller, CAFOD’s economist

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