World Bank head David Malpass’s big appeal

Another week, another wave of sabre-rattling with China. But this time the rhetorical anger emanates not from Washington but Brussels: before Ursula von der Leyen, president of the European Commission, left for a trip to Beijing this week, she made an unexpectedly strong speech that called for “de-risking” of Europe’s trade with China — ie controls to protect the continent from superior, cheaper Chinese tech.

VDL, as she is commonly known, pointed to sensitive technologies such as artificial intelligence to illustrate her point. However, she should look at the batteries that are so crucial for green tech to see the structural problems too: according to some intriguing research published by Pi Capital, the cost of creating batteries in China, the US and Europe is respectively $127, $157 and $160 per kilowatt of energy. If you add the impact of America’s Inflation Reduction Act, it is $127 in China and the US — but $178 in Europe. Ouch.

Meanwhile, in this week’s newsletter we look at whether the dash to green products is raising inflation, and highlight some intriguing comments from David Malpass, the outgoing head of the World Bank, before next week’s crucial annual gathering in Washington. Read on — and, as ever, let us know what you think about Malpass and much else. — Gillian Tett

Malpass defends his record as the exit draws near

When the World Bank and IMF hold their spring meetings in Washington next week, David Malpass, the bank’s head, will be in an awkward spot. After extensive criticism from leaders such as Janet Yellen about the bank’s alleged failure to champion green issues — which we trailed in Moral Money last year — Malpass is leaving a year before schedule. The White House has pitched Ajay Banga, former head of Mastercard, as his successor and he seems likely to secure the job, given that nominations closed late last week, seemingly without other candidates.

But with Malpass still in place and the bank under pressure to act, particularly around concessionary financing and blended finance, how will Malpass handle this (or not)?

One clue came in a curtain-raising speech he gave in Niger late last week. This did not dwell extensively on green issues; instead it was couched in the classic language of development economics. It called for sounder macroeconomic and fiscal policies — plus big dollops of aid — while presenting the climate change battle as a subset of this.

“The [Covid-19] pandemic increased the global extreme poverty rate from 8.4 to 9.3 per cent, the first recorded increase since we started keeping count,” he observed, noting that “a growing number of developing countries are facing the prospect of major domestic crises, with economic growth slowing, poverty and hunger on the rise, public debts reaching unsustainable levels amid rising interest rates, ineffective mechanisms for resolving external debt distress, under-investment and growing populations.”

This means that developing countries “will need $2.4tn a year for the next seven years to address the global challenges of climate mitigation and adaptation, conflict and pandemics,” he added. Will the multilateral development banks be able to supply this? Malpass thinks so. “The World Bank Group doubled its financing for global public goods during my presidency, reaching over $100bn in the three-year period of fiscal years 2020 to 2022, with over half of this amount in climate finance.” And he predicted that “at the spring meetings, we’re expecting to increase [the World Bank’s] financing capacity by up to $50bn over the next 10 years.”

If this materialises, some critics might offer half a cheer. Representatives from the E3G green think-tank, for example, held a conference call last week where they urged multilateral development banks to tackle poverty and climate change together — and expressed hopes that reforms will emerge around the Bank’s financial framework to expand its lending capacity. “We would give more credit to callable capital and want the MDBs to have an open line to credit rating agencies,” said Sonia Dunlop of E3G, who also wants the bank to sell assets to private sector players “and open up some of the data around this to help create more transparency”.

Dunlop also noted that “there are some signs that [the bank’s] direct support for fossil fuel projects is dwindling to near zero [which] could be because the US Treasury published updated guidance about what it would and would not support”. And while “there are still a lot of [MDB] indirect projects” linked to fossil fuel, she said, “we are moving in the right direction here. Any signs that reaffirm that at these spring meetings will be very important for civil society.” If so, Malpass may yet leave the bank on a better note; or, at least, with fewer brickbats. (Gillian Tett)

Inflation-hit consumers still want their green goods

Earlier this month, as the American banking crisis was flaring up, Jane Frazer, the mighty head of Citi, appeared at the Economics Club of Washington to discuss the state of the financial world. Along the way, she was asked about the inflation outlook, and warned that it could be tough for the Federal Reserve to hit the 2 per cent inflation target. “A greener economy — that is more inflationary,” she observed.

Is this really correct? Maybe so: if you look at consumer spending patterns, shoppers still seem willing to pay up for cleaner, greener items. But while that might worry economists, this trend is making money for companies, by enabling them to notch up premium margins.

“Our most sustainable products are also the most profitable ones,” Electrolux chief executive Jonas Samuelson observed at the company’s annual general meeting on Wednesday, revealing that at the maker of vacuums and washers about 40 per cent of returns are generated from sustainable products. “That is obviously something that we can continue working on very hard.”

Moreover, even as inflation pinches consumer spending, people continue to pay more for sustainable products, according to research released this month by New York University. For investors, that means companies launching green products are not just boosting their sustainability scores — they may also be boosting returns in sectors ranging from toothpaste to baby diapers,

The US market share of thousands of “sustainability-marketed materials” inched up to 17.3 per cent in 2022 from 17 per cent in 2021, NYU said. The figure was just 13.7 per cent in 2015. Notably, these figures do not include private-label brands, suggesting sales of sustainable products could be even higher, said Randi Kronthal-Sacco, a senior scholar at the NYU Stern Center for Sustainable Business.

She said she was surprised to see sustainability sales continue to gain market share in 2022 amid surging inflation. “There were also a lot of questions about whether sustainability marketed products would survive the pandemic, and they did,” she said.

Consumers’ appetite for sustainably produced items are translating into big opportunities for start-ups in the clean tech sector.

Consumer packaging companies “are more accepting [of] sustainable packaging products, knowing consumers have appetite to eat an increase in cost”, said Benjamin Stern, founder and chief executive of Nohbo, which makes water-soluble films for containers.

Thanks to consumer preferences, Nohbo plans to invest more in research and development, Stern added.

“Consumers will not entertain a sustainable product that results in a deteriorating experience,” he said. “Product experience trumps everything.” (Patrick Temple-West)

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