Managing Director & Senior Partner
The COVID-19 pandemic swept the world in just a few months, with immediate and catastrophic consequences: hundreds of thousands of deaths and a global economic standstill. The climate problem has unfolded over decades but, if left unchecked, will likewise have profound and permanent consequences for lives and economies on the planet.
As countries globally are feeling the strain on their economies, climate is at risk of becoming the pandemic’s next victim. This must not happen. As they mobilize massive resources to tackle COVID-19 governments, businesses, and investors have a once-in-a-lifetime opportunity to rebuild in ways that support a carbon-neutral future and usher in a new economy. By focusing on the climate agenda, even in the midst of this pandemic, leaders can direct investments toward sustainable infrastructure, green jobs, and environmental resilience. This isn’t just a moral imperative—Flipping the Script on Climate Action.
In the wake of the pandemic, global carbon emissions are expected to decline by 5% to 10% in 2020. This is the largest drop since World War II. (See Exhibit 1.) But instead of offering relief for the climate, it actually veils a significant threat.
In theory, this year’s projected drop in greenhouse gas emissions puts the world on a trajectory to limit global temperature rise to 1.5°C by 2050. (According to the UN’s Intergovernmental Panel on Climate Change, the world requires a 5% reduction of global net emissions every year to reach the 1.5°C goal by 2050.) But a crippling economic shutdown cannot be a first step toward this path. Instead, preventing the climate crisis will require fundamental economic transformation.
On the one hand, COVID-19 will almost certainly trigger a few helpful structural shifts—including more remote working, less frequent and shorter-distance business travel, and abbreviated supply chains—as companies seek to derisk their operations. On the other hand, the risk of a significant rebound in emissions—and worse, a delay in the needed transformation of global economies—currently seem much more likely, for several reasons:
Despite the decline in this year’s emissions, we will still be adding more than 47 gigatonnes of CO2 equivalent into the atmosphere (down from approximately 53 gigatonnes last year). The next few years are decisive for bringing this figure down further, and our actions will shape the planet for generations to come. Unless we manage to fundamentally transform global energy systems and lay the foundation for a green economy now, the pandemic-induced drop in global emissions will not be the beginning of a turnaround, but a one-off effect for climate.
The world stands at a crossroads: we can go back to how things were or we can seize this moment to create a greener, more resilient world. Governments, companies, and investors have an important role to play in orchestrating a recovery that addresses the current crisis, while building a strong foundation to tackle climate change.
Governments Should Invest in a Green Recovery. As the COVID-19 crisis unfurls, the governments of the largest global economies have thus far committed 4% of GDP on average (in some cases more than 30%) in direct stimulus and additional financial support to overcome challenges associated with the pandemic. (See Exhibit 2.)
This massive mobilization of stimulus funds offers a once-in-a-lifetime opportunity to drive a recovery that optimizes for social and environmental outcomes, in addition to economic ones. To achieve this goal, governments should:
Companies Can Reduce Carbon and Costs. After a decade of uninterrupted global growth, COVID-19 has upended business as usual and ruthlessly exposed weaknesses in existing business models, highlighting the need for companies to strengthen resilience to a variety of risks. To build resilience, we recommend that companies take the following actions:
Investors Should Focus on Climate Resilience. For many investors and lenders, 2020 was going to be the year of bold climate action. In January 2020, at the annual gathering of the World Economic Forum, the Net-Zero Asset Owner Alliance (an alliance of investors committed to transitioning their portfolios to net zero greenhouse gas emissions by 2050) announced that it had secured signatories representing $4 trillion of assets under management. Weeks later, markets experienced some of the worst performance in modern history. Nonetheless, despite the market volatility and uncertainty, several investors, including Legal & General Investment Management and BlackRock, released statements reiterating their commitment to climate priorities.
Like COVID-19, climate change presents a unique risk—and investors will need to think and act creatively:
Winston Churchill is famously (and controversially) credited with the phrase “never let a good crisis go to waste.” Any recovery constitutes an opportunity for renewal. COVID-19 is a dramatic illustration of what happens when we ignore early warning signs, but it also shows what governments, organizations, and citizens can achieve, individually and through cooperation, when truly pressured to act for the greater good. In this regard, the COVID-19 crisis has yielded a series of crucial lessons.
We need to prepare better. Clearly, the world was not fully prepared for the COVID-19 crisis. In retrospect, greater preparation would have been enormously valuable for both health and economic reasons. The climate crisis is more predictable, and its worst effects can still be avoided. Prudent climate strategies need to focus on both reducing emissions and adapting to the present and future impacts of climate change.
Countries are capable of drastic action. In the wake of an immediate threat and mounting death toll, governments and companies took drastic measures to prevent or at least slow the spread of the pandemic. People have temporarily accepted sweeping restrictions to their ways of living and working to fight a real threat. Much more measured reforms would be sufficient to fight the climate crisis, but equally decisive political intervention is needed to drive them.
Citizens could be catalytic in a post-COVID-19 world. In the midst of the pandemic, acute economic anxieties, joblessness, and financial losses are on the minds of consumers, a situation that leaves little room for discussions of climate and environmental concerns. In the midterm, however, this may change. The shared experience of enduring a natural disaster, questions about whether governments anticipated and managed the crisis effectively, and raised awareness of the visible “cost” of economic activity (in terms of air pollution, for example, which has declined considerably during the pandemic) may create a renewed sense of urgency regarding climate action.
Before COVID-19, climate action was on a positive trajectory: CO2 emissions leveled off in 2019, companies and investors were increasingly placing climate at the top of their agenda, and most governments were revisiting (and hopefully strengthening) their climate plans ahead of COP26. If our crisis response doubles down on this progress, the COVID-19 recovery efforts can contribute to solving two crises at once.
COVID-19 may have caught the world by surprise, but the climate crisis is entirely predictable. The question is: Will we look back in ten years and see that we used this chance to become more resilient and launch a green economic recovery—or that we missed the chance to reverse the trajectory of an even more devastating global crisis?
The authors thank Elena Corrales, Sander van Damme, Marco Duso, Dave Sivaprasad, Stephanie Wegener, and Younès Zrikem for their contributions to this article.
We partner with clients across the public, private, and social sectors to align their strategy, operations, and stakeholder engagement with a low-carbon world. Our work is supported by BCG’s range of consulting experience across all industries and capabilities, as well as by our expanding reach of brands.
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