By Francois Austin and Robert Bailey
This article first appeared in World Economic Forum Agenda on April 28, 2020.
Instead, we are facing a virulent coronavirus pandemic that has shut down most economic activity worldwide and sidelined the issue of climate change.
As we struggle to find our path back from COVID-19, companies and governments should not overlook the lessons the virus is teaching us about the need to get ahead of crises. The strategies being implemented today to offset the economic impact of months of lockdowns might also inform efforts to reduce CO2 and other greenhouse gas emissions moving forward. As companies make calls about how, where and when to cut costs and where to invest post-COVID-19, they need to start using a green lens to make sure that decisions on such items as capital investment or asset retirement also reflect their future needs to reduce their carbon footprint.
An analysis by Oliver Wyman and CDP, a leading climate data provider, showed that a €24 billion investment in low-carbon technologies and efficiency generated a net reduction in operational costs of €41 billion for European companies. At this point, savings are something corporate executives everywhere desperately need to find, given projections of the many months — potentially years — it will take for the economy to bounce back after the virus subsides.
Radical changes in the way many businesses operate are already significantly cutting CO2 emissions
For many businesses, the lockdowns are providing a kind of real-world experiment on how to survive months of little-to-no business activity. Radical changes in the way many businesses operate and serve their clients — necessitated by social distancing — are already significantly, if inadvertently, cutting CO2 emissions. In China, the world’s biggest emitter, the lockdown from mid-January through March is estimated to have reduced emissions by as much as 25% in the first quarter. While these gains are no doubt temporary, some of the operational changes that accompanied the drop could provide insights on how to optimize business’ carbon footprints from important emissions sources like office space, travel and product distribution.
Supply chain lessons
Supply chains have been substantially rethought after the lockdowns exposed major vulnerabilities. Very often one of the largest contributors to a company’s carbon footprint, the supply chain is typically a corporation’s Achilles heel when it comes to efforts to reduce emissions. One of the biggest obstacles is that companies often don’t have sufficient visibility into supplier operations to get a full appreciation of their carbon footprints.
The response of some companies to the current disruption has been to add domestic suppliers to their mix or to give those they already use a bigger share of their business. In some cases, companies have experimented with nearby 3-D printing to replace certain components in shortage because of lockdowns. Either solution would reduce transport-related emissions, which suggests the approach should be retained after COVID-19 subsides.
Some businesses are also choosing to limit the number of suppliers with which they do business. This way they can work more closely with them, even helping to bolster their operations through investment or guaranteed business. Again, this can be a plus because it gives a company leverage to insist on stricter measures to reduce emissions. For instance, companies could require their suppliers to use renewable energy to make the cut.
For companies that believe businesses should be moving aggressively to lower emissions, there’s a lot at stake. One of the most obvious sources of risk and opportunity on the horizon is the raft of governmental economic stimulus measures being enacted. Stimulus packages that tolerate higher emissions as a necessary evil could increase the relative costs of decarbonization, placing companies that pursue it at a competitive disadvantage and making nations more vulnerable to climate crises down the road.
Businesses working toward carbon neutrality need to become vocal on the subject and engage with policy-makers
If governments want to ensure a move toward lower emissions, they should attach some conditions on stimulus money that encourage companies to incorporate environmental risk management into their strategies for recovery. For instance, stimulus measures could be more generous for companies with low-carbon business models and those that channel investment into green infrastructure. This could prove transformational for developing capital-intensive technologies like hydrogen energy or carbon capture and storage. Businesses working toward carbon neutrality need to become vocal on the subject and engage with policy-makers to ensure that economic packages support decarbonization plans rather than undermine them.
Right now, the shape of the coming global recession and subsequent recovery remains uncertain. Based on expert projections, it seems likely the world will be grappling with waves of viral outbreaks and some form of travel and social restrictions for many more months — perhaps even through 2022, if recent research from Harvard University proves correct.
Many things may also be different once societies and economies emerge from this crisis. Customer preferences and behaviours may have changed. Policies and regulations may have been recast. Concern about global threats, such as climate change, may have been heightened or set aside entirely.
Our next COVID?
Undertaking scenario analysis associated with the transition to a low-carbon economy in the midst of the current crisis may seem like an indulgence, but it allows businesses to reassess the risks and opportunities and adapt plans accordingly. While dealing with the coronavirus pandemic and its economic impact is rightly the priority, climate change could easily end up being our next COVID a decade hence if we don’t begin to take the need to begin the energy transition more seriously.
While the pandemic will end eventually, the effect of rising greenhouse gas emissions will continue to wreak havoc on Earth’s climate until businesses commit to lower emissions. And there will be no vaccine to protect us from its worst consequences.