The environmental opportunity created by COVID-19
On World Environment Day, we look at six ways businesses can help avert rapid nature loss and tackle climate change.
COVID-19 is a global crisis that knows no borders, has impacted billions of lives, and has left no organization or economy untouched. It’s shown how systemic risks can have exponential repercussions — on health systems, sudden unemployment, supply chains, and the global economic outlook. Our preparation and resilience are being tested. The immense scale and diversity of the challenges sound very familiar to those who have long championed urgent action to avert catastrophic climate change and rapid nature loss. The difference with climate change is we know what the costs will be if we don’t act now.
That’s why we should look at our efforts to rebuild the post-pandemic world economy through the lens of action on climate change and nature loss. The global losses from climate change could total US$600 trillion by the end of the century. That will hit the global economy harder than the coronavirus. When it comes to nature loss, PwC analysis for the World Economic Forum shows that industries that are highly or moderately dependent on nature generate more than half of global GDP ($44 trillion), underscoring the financial exposure for businesses worldwide if current trends continue unabated.
As we navigate through and ultimately emerge into a post-pandemic world, the case for building back better, with the environment at the center of public- and private-sector strategy, is compelling. Here are six key areas where policy and business action have the potential to help rebuild a healthy and resilient economy for the future.
Work with governments to ignite a green recovery. A focus on green stimulus packages is emerging in many regions as governments recognize that rebuilding green can spur economic and job growth and create a more resilient system. In the largest U.N.-backed, CEO-led climate advocacy effort, 155 companies — with a combined market capitalization of more than $2.4 trillion and representing more than 5 million employees — signed a statement urging governments to align their COVID-19 economic recovery efforts with the need to achieve a net-zero carbon economy.
The EU has already confirmed the health 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. Companies can champion a win–win pipeline of infrastructure and technology projects that can boost job creation in clean energy, build energy efficiency, and bring about sustainable transport.
Bailouts could have sustainability strings attached. As governments make decisions and set conditions on bailouts or longer-term direct support for companies, questions should be asked about companies’ potential resilience in the face of future crises and disruptions, including climate change and nature loss. Conditions could be imposed on companies that have a big carbon footprint and that are in financial distress due to COVID-19 — such as those in aviation, oil and gas, and shipping — requiring them to demonstrate their ability to transition to a low-carbon future.
In Canada, companies that receive emergency loans from the government will be required to publish an annual climate-related disclosure that describes how their operations will support environmental sustainability and climate-related goals. And France recently announced its €7 billion ($7.7 billion) bailout of Air France includes environmental conditions around carbon intensity and the use of alternative jet fuel.
Corporate resilience becomes supercharged. When the dust settles, the harsh lessons from this crisis are likely to accelerate the efforts of regulators and investors to price in systemic risks. Boards would therefore be wise to prioritize quantifying material risks related to climate and across operations and supply chains, integrating them into core enterprise risk management processes, and putting in place effective governance, productive incentives, and robust disclosure.
The global losses from climate change could total $600 trillion by the end of the century. The case for building back better, with the environment at the center of public- and private-sector strategy, is compelling.
Doubling down on environmental, social, and governance (ESG) performance. Share prices for companies that have the highest ESG ratings are outperforming others; on average, they fell less far and have recovered more quickly than the market since the onset of the COVID-19 crisis. More stakeholder-oriented firms also appear to be faring better in the short term and making choices that will set them up for future success. This should send a message that the trend toward stakeholder capitalism — which started before the current crisis, in which companies succeed by creating value for all stakeholders, not just shareholders — is accelerating. Investors around the world have been embracing “sustainable investing,” allocating ever increasing capital on the basis of a firm’s ESG performance. ESG’s rising profile offers opportunities to increase societal value creation.
Harnessing new business models and practices. The novel coronavirus has rapidly disrupted business norms and created new ways of working that, if sustained, could also reduce emissions. These include remote teleworking and socializing, near-shoring, and a new mantra of “make where you sell,” which places a new value on localized supply chains and includes a rise in 3D printing and automated manufacturing. COVID-19 has added a new meaning to the term track and trace, a concept that could be applied to what we produce and consume, which might provide a better road map for conservation and sustainable supply chains. The technology exists; it could be used to increase transparency and efficiency, but we will need to be on the front foot to manage social consequences.
Seeking out sustainable value in deals. As mergers and acquisition activity begins to pick up in a post-COVID-19 world, it will be important for due diligence, valuations, and purchase price adjustments to reflect more than just immediate post-crisis prospects. The transformation required to deliver net-zero emissions, for example, will present huge value creation opportunities for those with solutions. The trend to “buy dirty and sell clean” as a strategy for private equity will grow, alongside identifying companies that offer solutions to achieving net-zero status, as highlighted by unicorns, including Tesla and Beyond Meat. Similarly, firms that can help mitigate the most pressing drivers of nature loss — such as the precision agriculture startups that promise to radically reduce the amount of land, emissions, pesticide, and fertilizer needed to grow crops — are starting to attract increased investor attention.
The shutdowns resulting from COVID-19 are not just temporary; recovery will take time, and the aftershocks will fundamentally reshape industries and society. As the economy is relaunched, it is vital that companies seek to build back better and, in doing so, help society overcome the existential threats of climate change and nature loss.
Author profiles:
- Celine Herweijer, Ph.D., is PwC’s global innovation and sustainability leader. Based in London, she is a partner with PwC UK. She also serves as co-chair of the We Mean Business Coalition.
- Will Evison represents PwC on the World Economic Forum International Business Council (IBC) task force developing reporting guidelines on sustainable value creation. Based in London, he is a director with PwC UK.