Speech by Dutch finance minister Sigrid Kaag at the session on ‘ensuring investments into climate mitigation and the macroeconomic implications’ at the Bruegel Annual Meeting, Brussels, 6 September 2022

Speech by Dutch finance minister Sigrid Kaag at the session on ‘ensuring investments into climate mitigation and the macroeconomic implications’ at the Bruegel Annual Meeting, Brussels, 6 September 2022

Good afternoon, everyone.

On Spitsbergen, the temperature is rising faster than anywhere else – by six degrees over the past 60 years.
In Europe, never before have so many hectares of forest burned down as in the first six months of this year.
And on our rivers, drought and low water levels are causing problems for inland shipping, raising prices even further.

These are only a few recent news items about climate change. These days, an internet search on the subject can make you want to slam your laptop shut, and close your eyes. Fortunately, we are also seeing deepening and broadening awareness of the fact that closing our eyes will only lead us towards catastrophe.
In so far as we have not already reached that point.

So I would like to thank you for inviting me to speak here today about one of the most important and most complex issues of our time: climate change, and the task before us.
Specifically: how to ensure public and private investment in climate mitigation?
Because we will accomplish little if we do not spend our money in the right way.

When I was preparing this lecture, my thoughts turned to Pieter Brueghel and his most famous painting, the Tower of Babel.
It is a picture that you can look at for hours.
A picture that evokes danger and darkness.
And every time you look, you notice something else.
It is based on a biblical story that is equally fascinating because of its multifaceted symbolism.

Looking at this painting today, I see parallels with climate change.
Have we humans been too arrogant – building and consuming and spending, on and on, to the extent that we have exhausted nature and the planet?
Have we put technology before nature?
Is Earth now confounding our plans, like God in the Tower of Babel story?

There is no question that we must do something about climate change.
And fortunately, the sense of urgency and the willingness to take action are growing everywhere.
In this regard, I believe we need to consider two questions. First: are we doing enough and are we still on time?
And second: how do we get everyone on board?

The beginning of my answer to the first question is this: we have sufficiently ambitious goals; now we must follow through with action.
We’re talking the talk, now we need to walk the walk.

The battle against climate change puts demands on all of us. Consumers, policymakers, companies and financial institutions. And it is important that we join forces in this battle because national borders are irrelevant when it comes to the climate. The way to do this is through common European policy and climate action by financial institutions, companies and individuals.

So, first of all, we have to walk the walk at home.
To that end, the Dutch government has defined ambitious goals.
We are aiming for a 60 per cent reduction in carbon emissions by 2030, 80 per cent by 2040, and climate neutrality by 2050.

We are supported in this by the European Commission, whose Fit for 55 package sets all the right priorities.
It is now up to the Council and the Parliament to reach agreement on this package.
I urge them all to stand fast in their ambitions.
It is also up to the member states to start working towards these goals.
It is in our direct interests to do so from both a humanitarian and economic point of view, as the remorseless droughts and forest fires this summer have shown.
Healthy public finances make sustainable reforms possible – reforms that are the foundation of a climate strategy that is fit for the future.

European funding should also pursue sustainable objectives. Member states can use money from the Recovery and Resilience Facility to strengthen their economies for the future.
37 per cent of the funds from this Facility must be spent on green measures.
And at least 30 per cent of funding from the Multiannual Financial Framework and the RRF together must contribute to the climate goals.
In this way we are following up on the aims we have set ourselves. I am proud to say that with 48% of our financing envelope going to green measures, we far exceed these minimal thresholds.

But of course EU funds alone are not enough.
The member states also have national responsibility to free up sufficient funding for climate policy.
That is why the Netherlands has established a 35 billion euro climate fund for the next 10 years, to help us achieve the sustainable transition.

The private sector also has a key role to play. In fact, the majority of investment will have to come from the private sector, as Bruegel has calculated.
By now there are few companies that do not have sustainability high on their agendas.
But it’s essential that the private sector, too, matches its words with deeds.

I have therefore called on the financial sector to draw up ambitious goals, like the government, and take responsibility. After all, it is they who determine how and where the money flows.
So they can achieve huge impact by not financing big polluters or by encouraging these industries to become more sustainable.
At the same time, I am asking financial institutions to be transparent about this.
So that market discipline can do its work.
Because consumers, clients and civil society organisations also increasingly set store by their bank, insurer or pension fund being sustainable.
This is not only responsible business conduct, it is also important for the stability of the financial sector itself: financial institutions must deal effectively with those risks of climate change which also affect them.

We will only succeed if we work together.
So I want to share experiences with other pioneers in Europe on making the financial sector more sustainable.
And continue making progress with this agenda across the Union.
The connection between the real economy and the financial sector – between Fit for 55 and the sustainable finance agenda – is key.

We have the plans and ambitions.
The time ahead will be about implementation.
And this brings me to my second question: how do we get everyone on board?
It is not an easy question, so I am looking forward to hearing the panel’s views on this soon.

Studies have shown that a growing number of Europeans recognise that action is necessary.
But the reality is that we are living in a time of political and economic instability.
Putin’s brazen invasion of Ukraine earlier this year has put paid to many of our certainties.
And this war is still raging, with heart-breaking consequences: a devastated country, many thousands dead or injured, and millions of refugees.
The war has also increased economic uncertainty worldwide, including in Europe and the Netherlands.
It has led to inflation and soaring energy prices, which are now so high that even middle-class families are finding it difficult to make ends meet.
To say nothing of people on the lowest incomes.

The impact of high energy prices is especially devastating on those low-income households.
We must help them.

We can do so with targeted support measures for vulnerable groups.

But we also need to ensure a well-functioning energy market.

This includes setting ambitious efforts for reducing energy demand.

I would add a word of caution about measures that form a subsidy on energy consumption.  As shown in the paper on this issue published by Bruegel today, such measures can undo the incentive to reduce energy demand. So we have to think about it in a clever way.

I believe EU measures to cushion the blow of high energy prices should not come at the expense of the energy transition.

Despite the uncertain situation that we currently find ourselves in, when it comes to climate action we do not have the luxury of being able to press the pause button.
Because doing nothing would also have far-reaching economic, humanitarian and political repercussions.

Politicians and administrators also have to look to the long term.
And in the long term, it is in everyone’s interests that we set our shoulder to the wheel now.
By making choices now, we can buy ourselves a future.

This does not relieve us of the responsibility to strive for a transition in which we leave no one behind.
A transition that takes account of those for whom the burden is becoming too heavy.

Change is always difficult – and all the more so when it demands a sacrifice.
Take the Dutch farmers who have been asked to reduce their nitrogen emissions.
They are concerned about the future of their farms – which, in many cases, have been in the family for decades.
And their reaction is to protest against the plans.
A small group has taken this to extremes, going far beyond what is acceptable.
But their concerns, their questions and their fears? These are understandable.

So we need to understand that, besides having an impact at scale, all those good, vital initiatives and intentions that I talked about earlier also have consequences for individuals and their lives.

The challenge for us – politicians and administrators – is not to lose sight of this fact.
And to continue translating policy jargon into real-world examples.
A percentage in the Stability and Growth Pact or a provision in the Taxonomy Regulation – how does that translate to a low-income household that needs to insulate their home, or a business owner whose income model is at risk?

If we do not make this translation, we will get a Babylonian confusion of tongues, like in the Bible story.
Two worlds that no longer understand each other – and yet the task before us is one we must do together.

In this, we need to beware of false distinctions.
Administrators versus the people.
Town versus country.
Of course, differences exist.
But administrators and civil servants are also people who are concerned about climate change and their children’s future.
The high energy prices hurt people who live in the cities as well as people in the country.

A sustainable transition will require sacrifices from each and every one of us.
We will all need to adapt to a different way of life.

The Tower of Babel symbolises humanity’s boundless ambition. Perhaps the moral of this story also points the way to a solution.
We need a new approach, not characterised by arrogance that can only lead to downfall, as in the Genesis story.
We should not put ourselves at the centre of the universe.
But take our role as stewards seriously and weave nature and the environment more firmly into the fabric of our lives.
We should work together with all our hearts, while always doing our best to see each other’s point of view and speak each other’s language.

Thank you.