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What will a post-pandemic world mean for climate change?
COVID-19 is a global crisis that knows no borders, has impacted billions of lives, battered the global economy and left no company untouched. It’s shown how systemic risks can have exponential impacts, and how unprepared and unresilient our systems can be even for a crisis we know will happen. This all sounds very familiar to those that have long been championing urgent action to the looming global crisis ahead - climate change.
COVID-19 has also shown us that to tackle a global crisis, governments need to come together and companies need to come together for the public good. Leaders have to take extraordinary actions for the bigger cause. We have seen trust in science increase, and we can see - for example through the creation of testing kits, a vaccine, or contact tracing apps - how crucial it is to innovate at scale and speed to find new solutions. Again, all actions we expect will also be critical to tackle the urgent climate crisis.
As we navigate through and ultimately emerge into a post-pandemic world, how we reshape will have key implications for our ability to address climate change this decade:
- Directing the recovery trillions. As unprecedented stimulus funds get pumped into countries around the world, calls are increasing for green recovery packages. The infrastructure, business, and technology investment that follows should align with the critical climate commitments governments also need to meet in the next decade. The tax reform component of COVID-19 stimulus packages could be key, with early examples emerging: China will extend subsidies and tax exemptions for new energy vehicles, while the UK is increasing the tax paid by owners of large utility vehicles and adding incentives to increase the uptake of electric cars. At a time of cheap oil, revisiting and redirecting expensive fossil fuel subsidies could also be prudent. Infrastructure and technology projects that can boost job creation and incomes in clean energy, building energy efficiency, and sustainable transport are win-wins, and in stark contrast to investments that bet on declining technologies and create underperforming or even stranded asset costs in the coming decade or two (e.g. new coal-fired power plants - see “half of all coal plants are expected to be unprofitable this year”).
- The role of governments and the urgency of climate priorities. The role of governments has been reset. People and society are prepared to accept an extraordinary level of government intervention because of the perceived threat level from COVID-19. Tackling the climate crisis will need interventions on a similarly all embracing scale and should not be delayed even with pressing economic needs front of mind. The focus should now be on how rebuilding green can stimulate economic recovery and jobs while achieving a more resilient system in the process; it’s not a zero sum game. The EU has already confirmed the COVID-19 crisis won’t stop Europe from developing bolder 2030 climate targets, and that green finance will be a “key focus” of the post recovery phase. However outside Europe we may likely see some governments drop climate priorities to focus on pressing economic needs for several years (e.g. Japan’s decision to not currently increase its climate ambition). The more long drawn-out the crisis - with deepening recession, spiralling debt, and muted consumption and investment - the more challenging it will be to prioritise spending beyond the front-lines of disaster support and human welfare.
- Corporate bailouts. As governments make decisions and set conditions on bailouts or longer-term direct support for companies, questions will be asked about companies’ resilience in the face of future crises and disruptions - including climate change. Companies in financial distress due to the COVID-19 crisis - and which are also high emitters, such as those in aviation, oil and gas and shipping - may find that conditions are imposed on them requiring them to demonstrate resilience to climate risks, including their ability to transition effectively to a decarbonised future.
- Re-setting corporate resilience and upping the ante on ESG: The harsh lessons from this crisis are likely to accelerate efforts, in a post-pandemic world, of markets and boards to price in systemic risks (in particular climate risks: physical and transition risks). This will include accelerating climate risk governance and disclosure, and the prominence of ESG more widely.
- Harnessing business model disruptions: COVID-19 has rapidly disrupted business norms, and created new preferences and practices that if sustained, could also lead to direct emissions reductions. These could include remote teleworking and increased digital social connecting, nearshoring, and regionalising and nationalising supply chains along with 3D printing, which would usher in a new mantra of “make where you sell”. Across the board, these could deliver sustained reductions in transportation demand and associated emissions. In addition, the accelerating automation of production lines and the retail sector brought about to enable business continuity during this crisis, will also deliver emissions reductions.
In summary, companies and countries need to emerge from this crisis stronger, more resilient, and more sustainable than they were before. COVID-19 is not just a shutdown; recovery will take years and the aftershocks will likely fundamentally reshape industries and society. As the economy is re-launched, it is vital that governments and companies alike should build back better, and in doing so are ready to not just face up to the climate crisis, but to beat it.
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