OECD Forum on Green Finance and Investment Day 2: Opening Remarks

Remarks by Gabriela Ramos on the second day of the OECD Forum on Green Finance and Investment hosted at the OECD Headquarters in Paris, France on 30 October 2019.

Good morning Ladies and Gentlemen,

Welcome to the second day of the 6th OECD Forum on Green Finance and Investment. 

Yesterday, Secretary-General Gurría opened this Forum with a call to action that highlighted not just the scale of the climate emergency, but also the importance of tackling it with policies that also promote inclusion and well-being.

We have seen here in France, but also more recently in Chile, that we have to put people at the centre of all of our policy efforts, including those that are linked to reducing our dependence on fossil fuels and incentivising green growth.

The OECD has made this a priority in the last few years with groundbreaking studies like Investing in Climate, Investing in Growth, and most recently Accelerating Climate Action: Refocusing Policies Through a Well-Being Lens. There is a clear empirical case: policies that work for climate and people, also work for growth.

OECD research undertaken at the request of the German Presidency of the G20 showed that climate-compatible policy packages could increase long-run output by up to 2.8% on average across the G20 by 2050.

Financing is an important part of getting this policy mix right, and not just how we mobilize more climate finance but also how we mobilize it more effectively. We have the power to do more with our investments.

Let me begin with engaging emerging economies, which is a key area for discussion today, and in particular India and  ASEAN countries.

India has set ambitious targets of installing 175 GW of renewables capacity by 2022 and 500GW by 2030. Achieving India’s clean energy goals will require around USD 500-700 billion in investment in the coming decades.

Similarly, ASEAN has set a target of sourcing 23% of its energy from renewable sources by 2025. As a region, ASEAN’s clean energy goal requires USD 290 billion in investment through 2025.

While progress has been made in financing renewables and energy efficiency infrastructure in India and the ASEAN, an investment gap remains. Governments cannot shoulder this burden alone. Catalysing private investment requires an enabling investment environment and a pipeline of investment-grade projects.

Thus, the OECD’s new Clean Energy Finance and Investment Mobilisation Programme, which you will discuss today, aims to support selected emerging economies in Latin America, South and Southeast Asia strengthen their clean energy policies to attract private investment for through clean energy finance reviews, policy development, investor dialogues and regional peer learning.

As these economies continue to grow, we must ensure that any increase in consumption is matched with a  supply from renewable or other low carbon sources, rather than adding to the global demand for fossil fuels. This goal, alongside efforts to promote energy efficiency and energy conservation can significantly advance our progress toward a low-carbon global economy.

We are looking forward to hearing your insights, experiences and ideas on taking this forward.

Linked to this agenda is another key challenge you will be addressing today: biodiversity loss. At the request of the French G7 Presidency, we recently published a new report Biodiversity: Finance and the Economic and Business Case for Action. The picture is worrying, and a lack of sufficient financing and ambitious action is at the heart of the problem.

The OECD estimates that finance flows with the potential to harm biodiversity stand at 500 billion US Dollars per year, ten times larger than global finance flows for biodiversity conservation and sustainable use.[i]

Over the last half century, such toxic finance flows, and the interests that drive them, have helped destroy one tenth of the world’s terrestrial biodiversity and one third of freshwater biodiversity. We are on course to lose another 10% of terrestrial species by 2050.[ii]

And yet protecting biodiversity is not just about surviving, it also about thriving. Ecosystem services delivered by biodiversity, such as crop pollination, water purification, flood protection and carbon sequestration are worth an estimated USD 125-140 trillion per year, more than one and a half times the size of global GDP.

The OECD has identified key priorities to help scale up and align finance for biodiversity from all sources, public and private. For example, we need a global framework to coordinate action; remove harmful subsidies; consistent and comparable finance tracking and reporting frameworks across countries and companies. Last but not least, we need multi-stakeholder engagement to ensure a common approach for measuring and integrating biodiversity in business and investment decisions.

Key to addressing biodiversity is managing rapid urbanisation, which is also on our agenda today.

By 2050, almost 70% of the world’s population is expected to be living in urban areas.[iii] This is already bringing important environmental impacts, when you consider that cities are responsible for two thirds of energy consumption and for 70 percent of global emissions.[iv]

Cities are core for climate action, and many are actually taking the lead. Recent OECD evidence has shown that cities and regions are responsible for 64% of public investment and half of public spending in selected sectors that have a direct implication for climate change.[v]

However, action to date has been far short of the mark. Subnational climate-related spending represented just 1.3% of GDP on average over 2000-2016, while subnational climate-related investment represented around 0.4% of GDP. Public funding will not be sufficient to finance sustainable cities. We must mobilize the private sector to help finance this investment deficit. Today, you will get a chance to discuss the innovative financial instruments available for cities such as green bonds, equity funds, and land-value-capture instruments to outline concrete actions and recommendations to unlock private investment.

As you can see, the question at hand at this forum is not just how we mobilize more finance to fill key investments gaps to climate mitigation and adaptation efforts. We must go a step further, thinking critically about where and how we direct these finance flows towards strategic synergies that accelerate progress towards a low carbon future, and benefit people and planet.

Thank you and enjoy day two of the Forum.

[i] based on fossil-fuel subsidies and government support to agriculture that is potentially environmentally harmful

[ii] https://sustainabledevelopment.un.org/content/documents/227542019_OECD_HLPF_Submission.pdf

[iii] https://www.un.org/development/desa/en/news/population/2018-revision-of-world-urbanization-prospects.html

[iv] https://www.c40.org/why_cities

[v] The average of 30 OECD countries over the period 2000-2016. Financing Climate Futures. Rethinking Infrastructure. Case study on Financing climate objectives in cities and regions to deliver sustainable and inclusive growth

OECD Forum on Green Finance and Investment: Introductory Remarks to Keynote by Professor Mariana Mazzucato, University College London

Remarks as delivered at the OECD Forum on Green Finance and Investment at the OECD Headquarters in Paris, France on 29 October 2019.

Dear Ladies and Gentlemen,

As we come together for this annual Green Finance and Investment Forum, energy related carbon dioxide emissions are rising again, reaching unprecedented levels in 2018.

You do not need me to tell you the consequences of inaction. We need deep and ambitious policy action to mitigate and adapt to climate change, and innovation is a key part of this.

Let there be no doubt: the rate and direction of innovation will help determine our success in transitioning to a low-carbon economy. However, we have a long way to go in getting the innovation policy mix right.

The OECD’s International Energy Agency is tracking the progress of 38 critical energy technologies necessary for a global clean energy transition, including renewable power, onshore wind, solar power, transport biofuels, smart grids, and energy storage. Currently, only 4 out of these 38 technologies are on track for development and deployment.

We urgently need to scale up these efforts, and key to achieving this is to make innovation mission-oriented, and not just motivated by financial gain.

Who better to tell us about how to achieve this than Professor Mariana Mazzucato, who has led the way in putting mission-oriented innovation on the policy agenda.

Her 2013 book, The Entrepreneurial State: Debunking Public vs Private Sector Myths looks at the ‘investor of first resort’ role that the State has played in the history of technological change — from the Internet to biotech— and the lessons for a Green New Deal.

In 2016 she co-edited the book Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth focused on new economic thinking. I have had the pleasure of engaging with her very closely around these issues through the New Approaches to Economic Challenges initiative, which I oversee, and for which she serves on the Secretary-General’s Advisory Group for a New Growth Narrative.

Most recently, her 2018 book, The Value of Everything: making and taking in the global economy brings the debate about value back to the heart of economics, with analysis on how to ensure we are rewarding value creation over value extraction and destruction.

Mariana currently holds the Chair in the Economics of Innovation and Public Value at University College London (UCL). She is also the Director of the UCL Institute for Innovation & Public Purpose.

Mariana is the recipient of a long and prestigious list of prizes, including the Leontief prize and most recently the inaugural Not the Nobel prize, for fresh thinking in economics.

Ladies and Gentlemen, please join me in giving a very warm welcome to Mariana Mazzucato.

Inauguration of the Expanded OECD Jakarta Office

Excellencies, Ladies and Gentlemen,

It was my pleasure to inaugurate the expanded OECD Jakarta Office on 4 November 2019.

The OECD’s relationship with Indonesia has blossomed in recent years. This reflects first the country’s economic dynamism and its growing role on the world stage. President Widodo has helped deliver annual GDP growth of around 5% a year and per capita income growth of around 4% a year, with living standards continuing to rise.

This deepening engagement between Indonesia and the OECD also points to the efforts of Secretary-General Gurria to build a more inclusive and relevant Organisation.

Back in 2007, we launched the first phase of this relationship (Enhanced Engagement), which we formalised when Indonesia became an OECD Key Partner in 2012, together with Brazil, China, India and South Africa.

That same year, Indonesia and the OECD signed a Framework of Co-operation Agreement – the first such agreement for a Key Partner.

The opening of our OECD representative office in Jakarta in 2015 is a testament to our deepening engagement and friendship.

I am delighted that the office is expanding. This will help us to bring our bilateral co-operation with Indonesia to an even higher level and, we hope, act as a launchpad for our work across the whole Southeast Asian region, particularly through the Southeast Asia Regional Programme (SEARP).

Warm thanks to all those Friends of the OECD who attended the inauguration, and thanks in particular to the New Zealand Embassy for hosting.

ASEAN Business and Investment Summit 2019: Advancing ASEAN 4.0 and Global Value Chains

Heads of States and Governments, Ministers, Excellencies and distinguished guests,

I am delighted to join you for the 2019 ASEAN Business and Investment Summit. Amid growing global trade tensions and uncertainties, that are directly impacting this region, the time is right for this discussion.  

Global value chains (GVCs) and digital technologies are an essential feature of our globalised, interconnected world, and they remain a key lever to improve it.

GVC participation has in many instances been beneficial for ASEAN economies. The OECD 2020 Economic Outlook for Southeast Asia, China and India, released today, estimates that ASEAN countries will grow at a rate of 4.9% over the next five years.

[Let me take this opportunity to thank those among you that made this Outlook possible, the governments of Korea, Japan, Switzerland and more recently the European Commission.]

We are increasingly referring not only to “Factory Asia” but also “Market Asia”, as consumption is booming from a growing middle class.  

GVC integration is a part of this success story. Jobs linked to GVC participation have grown over three times faster than total employment, and firms integrated into GVCs are more productive than other domestic counterparts.

However, global integration through GVCs has also brought downsides, and these must be addressed. Growth cannot come at the expense of people or the planet. We have to ensure that companies and state actors play by the rules and uphold the highest standards.

These include the various OECD due diligence guidance tools and the OECD Guidelines for Multinational Enterprises, which are critical to ensure GVC-related operations deliver safe conditions and quality jobs with adequate wages, social protections and job certainty.

In the digital age, we also have to be more mindful about the level playing field. Trade that works for all means ensuring that firms participating in GVCs are not only the highly innovative “born global” firms, but also local firms and SMEs.

However, the Fourth Industrial Revolution is also bringing challenges. Automation has the capacity to transform global value chains; removing many of the midstream activities, such as parts assembly, that have provided jobs, skills and growing incomes to low- and mid-skilled workers.

The OECD estimates that around 14% of jobs in OECD countries are at high risk of automation and a further third will change significantly in how they are carried out.

It is likely that southeast Asia will be particularly affected. The ILO estimates that almost half of existing jobs in Southeast Asia are at risk from automation.

To benefit from GVC participation in an age of the Fourth Industrial Revolution, policymakers must be forward-thinking and proactive, and they must put people first.

I would like to present three priorities for action.

First, skills development is key, and this is why the Economic Outlook for Southeast Asia, China and India focuses on human capital development.

Currently in the OECD, 15% of adults lack basic digital skills, and 13% lack basic digital, numeracy and problem-solving skills.

Digital skills, as well as creativity, adaptability, judgment and communication skills, will have to be embedded from primary education onwards, along with measures to boost STEM, especially for girls.

The OECD is developing new tools like the PISA Global Competence Framework, but as we build these new approaches and curricula, dialogue between policymakers and the private sector on shifting skills demand will become increasingly important.

So will co-operation around the design of lifelong learning and workplace training. OECD countries are exploring incentive schemes that can help shoulder training costs for employers, as well as initiatives to boost workforce skills in recipient FDI countries.

One example is the Sino-German Automotive Vocational Education (SGAVE), which is a partnership between GIZ, German car companies, and  pilot schools based in China to foster a local talent pipeline, particularly in engineering and IT.

The second priority I want to emphasis for harnessing GVCs in the digital age is make them work for SMEs. SMEs account for 95%–99% of businesses and more than half of the total employment in all ASEAN Member States.[i] And yet they only accunt for 10% to 30% of exports. This gap indicates huge potential, but harnessing digital technologies will be key.

Yet, a recent study found that only 10% of micro, small and medium sized enterprsises (MSMEs), used advanced digital tools.[ii]

We need to do better at diffusing technology across the economy. This requires measures to address limited competition, rigid labour markets, barriers to entry and growth for successful firms, as well as restrictions on trade and investment, and a burdensome regulatory environment, all of which may hinder technology diffusion for SMEs,  and favour larger firms.

The OECD has a wide range of tools to support SMEs, from fostering productivity to accessing finance and promoting inclusive entrepreneurship. Working closely with Business at OECD (BIAC), we have also just launched  the OECD Digital for SMEs Global Initiative, to promote knowledge sharing for all stakeholders supporting SME digitalisation.

OECD countries have interesting examples to share, such as the national campaign “Made Smarter” in the UK, the “Small Business Digital Champions” in Australia, or the “SME: Digital” strategy in Denmark, all of which have worked in parternship with the private sector.

And last but not least, my third priority, a well functioning digital eco-system. ASEAN countries are making good progress. We have seen a rapid rise in mobile broadband coverage. The mobile broadband penetration rates (per 100 people) in Singapore and Brunei Darussalam were at over 100% in 2016 and 2018 respectively, and those of Malaysia and Thailand were close to 100%. Meanwhile, Cambodia, Indonesia, the Philippines, Viet Nam, Myanmar, and Lao PDR are fast approaching 50%.[iii]

But more efforts are needed to deliver comprehensive, reliable, safe and affordable high bandwidth telecommunications infrastructure.

This requires regulations and policies that are based on consistent, clear and transparent principles, and that therefore foster competition in telecom markets.

Our recent report, Southeast Asia Going Digital: Connecting SMEs, suggests that more could be done to strengthen market competition in a number of Southeast Asian countries.

Of course it’s not just about facilitating data flows at all costs. Big data solutions and AI bring vast economic and social potential, but we are the creators of these technologies and we have to shape them for good uses. We need robust rules and structures to safeguard data privacy and security and protect citizens from the risk of data theft and misuse.

Ladies and gentlemen

The message is clear: the opportunities brought by global trade and digital technologies are vast.

However, trade integration, like economic growth and like technological progress, are not ends in themselves, but a means to improving people’s lives and opportunities.

This is the lens through which all countries, including ASEAN countries, must focus their policy efforts to harness GVS in the digital age. Count on the OECD.

[i] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019, https://asean.org/storage/2012/05/Study-on-MSME-Participation-in-the-Digital-Economy-in-ASEAN.pdf, p2

[ii] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019,  https://asean.org/storage/2012/05/ASEAN-MSME-Full-Report-Final.pdf, p4

[iii] Study on MSMEs Participation in the Digital Economy in ASEAN, October 2019, https://asean.org/storage/2012/05/Study-on-MSME-Participation-in-the-Digital-Economy-in-ASEAN.pdf, p1