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.

The COVID-19 Crisis Is a Threat to the Climate

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:

  • The asset base is carbon dependent. In many sectors, dependence on fossil fuels is hardwired into production and business models. Without active moves by governments and businesses, countries will gradually revert to combusting high levels of coal, oil, and gas as the economy rebounds.
  • Fossil fuels are cheap. Much of the energy transition so far has been driven by the growth of wind and solar, with electric mobility gaining momentum. Now a perfect storm of COVID-19-induced demand shock and oil-producer-induced oversupply has hit the oil market—briefly turning US prices negative for the first time in history. As gas and coal prices fall, the economic case for lower-carbon energy sources diminishes.
  • Funding capacity has eroded. The pandemic has eroded trillions of dollars of global GDP, and while The Economic Case for Combating Climate Change, delivering on the Paris agreement will require a total of $75 trillion in investments. Funding these investments will become more challenging, especially in emerging economies that are already struggling to pay off their existing foreign-currency debt as a result of capital flight.
  • Focus may shift. With jobs, health, and economic well-being on the line, governments and the public are more focused on addressing this urgent and very visible crisis than on longer-term challenges such as climate. As a result, the needed economic transformation could well be put on hold.

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 Resilience Opportunity

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:

  • Drive green recovery programs. The fiscal response to the 2008–2009 financial crisis reinforced rather than reversed the high-growth trajectory of CO2 emissions. In response to the COVID-19 crisis, governments should put sustainability front and center, investing in high-potential opportunities that create jobs while lowering emissions, such as large-scale renewables, building renovations, and industrial efficiency. (See Exhibit 3.) In an Ipsos MORI survey in 14 major countries, 65% of respondents agreed that it is important to prioritize climate change in economic recovery programs after the pandemic subsides. Justin Trudeau, the prime minister of Canada, has linked a portion of stimulus funding to the green recovery, establishing a $750 million emissions reduction fund, for example, with a focus on methane, to help companies reduce pollution and waste while maintaining and creating jobs.
  • Prioritize bailouts of sustainable companies and sectors. Governments should prioritize bailout packages for sectors that are poised to create green jobs and thrive in a low-carbon economy. Across sectors, governments need to deploy resources to companies on the condition that they commit to align their post-COVID-19 strategies with a 1.5°C to 2.0°C economy and adopt best practices for climate-related risk disclosure—using standards from the Task Force on Climate-related Financial Disclosures (TCFD), for example. More generally, in order to increase the resilience of carbon-intense economies and sectors, governments should make climate-related disclosure standards mandatory.
  • Prepare for complex job transitions. The world is going through a massive unemployment crisis (by mid-May 2020, new jobless claims totaled more than 35 million in the US alone). Once economies restart, millions of people will go back to work—some into sectors that have been radically changed. As governments respond to this shift in labor markets, they should prepare to manage a “just transition” of the workforce toward a net zero economy (by boosting renewable industries that may be threatened by lower energy prices and limited investment capacity, for example).
  • Leverage blended finance. Blended finance provides a catalytic use of public funds to mobilize additional private capital and maximize impact. It can be used to accelerate the transition to clean energy and greener technologies—or to help countries increase climate resilience within their national infrastructure.
  • Address inequality together with emissions. The economic fallout from the pandemic is a global disaster, but it will hit the most vulnerable parts of society especially hard. As governments combat rising inequalities, they should prioritize reforms that also accelerate economic transformation, such as revenue-neutral carbon-tax schemes paying per capita dividends.
  • Reboot multilateralism. When fighting global catastrophes, such as the coronavirus or climate change, much can be accomplished with national response strategies—but they have obvious limitations. During the pandemic, many nations responded independently, with little to no global coordination, often choosing isolation over cooperation. As we recover from the COVID-19 crisis, governments should reboot the principles and institutions of international cooperation to regain momentum for a more coordinated climate response, starting with COP26. This should include donor support for developing countries that were already struggling to build resilience to tomorrow’s climate change while delivering today’s necessities—a challenge that COVID-19 has only exacerbated.

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:

  • Reduce costs by reducing carbon. By systematically prioritizing energy efficiency and switching to renewable power, companies can not only increase resilience to future emission regulation but also realize significant savings. In our work in oil and gas, automotive, and other energy-intensive industries, companies have achieved emissions reductions of 20% to 40% at negative abatement cost—meaning that they are reducing carbon and costs while creating resilience against a future rise in carbon prices as well as other external and internal pressures. (See Exhibit 4.) Where funding is restricted, well-designed stimulus programs can provide incentives.
  • Scrutinize supply chains. In response to supply chain disruptions, many companies are reassessing their supply chain architectures for increased resilience: nearshoring suppliers, increasing transparency to improve logistics and forecasting, and building redundancy by qualifying additional suppliers. Companies should also use this process as an opportunity to understand and address their upstream and downstream carbon risks. By creating transparency into supplier emissions, introducing CO2 standards into procurement decisions, and committing suppliers to rigorous efficiency and emission-reduction targets, companies can protect their supply chains against future scrutiny, regulation, and cost risks.
  • Increase portfolio resilience. Climate is a megatrend—and megatrends are crisis resilient. While global oil markets are in turmoil, it is not surprising that renewables have been more stable. Companies that are restructuring their business and their product portfolios in response to short-term economic pressures will find that decarbonizing portfolios and building resilience to the physical, regulatory, and demand risks induced by continued global warming is a no-regret move—and that investors are rewarding environmental, social, and governance (ESG) performers in the crisis.

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:

  • Stress-test portfolios. As the world continues to combat the virus in the coming months, financial institutions will need to remain focused on navigating the associated market volatility and impacts on their balance sheets. They should also continue to emphasize the importance of climate in investment allocation and stewardship activities as a means of reducing their own future risk exposure. This requires integrating climate risks into credit models, pushing the adoption of climate-related disclosure, and scaling investments in climate-related portfolios. Encouragingly for this agenda, the ESG exchange-traded funds have fared significantly better during the crisis so far.
  • Fund the green recovery. Finally, as we shift from the immediate crisis response to economic recovery, investors should apply a lens of climate-related risks and opportunities when financing efforts to restart the economy. Today, financial institutions are tailoring solutions to companies involved in the direct health response (for example, Standard Chartered has committed $1 billion to financing COVID-19 solutions). Similarly, investors can bring a green lens when supporting economies to restart and rebuild—through green bonds and other instruments.

Early Lessons from COVID-19 Can Shape Climate Action

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.

BCG’s Center for Climate & Sustainability

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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