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Post Covid-19 stimulus and bailouts need to be compatible with the Paris Agreement

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  • Ben Caldecott

Abstract

Covid-19 recovery efforts via public and private finance should not support assets and companies that are incompatible with the Paris Agreement. Yet even before the current crisis, there was a lack of agreement about what investor portfolio or bank loan book alignment with climate change outcomes actually means, and what assets are (in)compatible with different carbon budgets and global warming thresholds. We need to clarify this urgently and embed it within decision-making frameworks. Assessing (in)compatibility with a warming threshold should take account of carbon lock-in. We also need to develop appropriate confidence levels for measuring (in)compatibility. The state of (in)compatibility changes under different circumstances and targets for alignment should be set in a way that explicitly acknowledges these uncertainties. A portfolio with a lower confidence level would be less desirable than one with the same level of alignment and a higher level of confidence.

Suggested Citation

  • Ben Caldecott, 2022. "Post Covid-19 stimulus and bailouts need to be compatible with the Paris Agreement," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(3), pages 886-893, July.
    • Handle: RePEc:taf:jsustf:v:12:y:2022:i:3:p:886-893
    DOI: 10.1080/20430795.2020.1809292
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