Business as unusual - Can COVID-19 recovery be aligned with planetary needs?

Once this war is over, may the challenge really be to create a planet that is fit for our grandchildren - Mark Carney, UN Special Envoy for Climate Action and Finance

Over the last few weeks, many of us have experienced a closer connection to our natural environment than we have for many years. When you are stuck at home and your only escape is a walk in nature or the local park, you start noticing things, particularly in spring. Birdsong, nests being carefully crafted, trees budding and flowers blooming are no longer lost in the cacophony of our busy lives.

In this blog I will explore how COVID-19 has altered our relationship with our planet, what this could mean for a postcorona world and how this will affect business.

The COVID-19 crisis has helped us understand the symbiotic relationship we have with our planet and how human action and wellbeing is inextricably linked to the natural environment on a number of levels:

The link between the incidence of viruses and the loss of natural habitats. In a paper published by the Royal Society, researchers found that "the causes of wildlife population declines have facilitated the transmission of animal viruses to humans". In particular, those species that are under threat as a result of human activity - mainly mammals through hunting and habitat destruction - host a very large proportion of so-called “zoonotic viruses”, the type that can be transmitted from animals to humans.

The link between poor environmental quality and recovery from coronavirus. According to a recent Harvard study, "long-term exposure to air pollution increases vulnerability to experiencing the most severe COVID-19 outcomes".  In its conclusions, they stress the importance of continuing to enforce existing air pollution regulations to protect human health both during and after the COVID-19 crisis. While this is predominantly an environmental issue, there is a social dimension as the sources of pollution are often located near low-income and minority communities.

The impact that the drop of economic activity has had on air and water quality. The waters in Venice are clearer than they have been in years, pollution levels have seen a significant drop in many parts of the world including China, Italy, Spain, the UK and the US. It goes without saying that CO2 emissions have also gone down as a result of the drop in industrial activity and transportation. We are likely to see the largest drop in carbon emissions since WW2.

To understand what might happen next we need to answer two critical questions:

1. Are the lessons from COVID-19 likely to result in changes in our attitude towards the natural environment and a resulting policy shift?

The first visible consequence of the crisis has been a clamping down on live animals markets in many parts of Asia. This will both reduce the risk of animal to human virus transmission, but also reduce the supply of live animals and protect certain species and ecosystems. 

Another one is behavioural change. We have all learnt to work differently over the last few weeks, dispelling the myth that we can only be productive if we are in a specific physical location. Some of these behaviours will stick, partly because the technology has been proven and partly because all businesses will be under pressure to cut costs. Travel budgets are likely to be the first to be tightened as a result and transport related pollution is unlikely to return to pre-COVID 19 levels.

But whether the recovery of ecosystems around the world will continue once we emerge from lockdown is far less likely, unless the postcorona world brings about a fundamental rethink of how we define societal success. One city that is considering this is Amsterdam, which last week announced that it will embrace 'Doughnut Economics' a model developed by Oxford Academic Kate Raworth which identifies environmental boundaries and social achievements to achieve a sustainable form of interaction between people and the planet. Another example is the New York Circular City Initiative, convened by Freshfields, which has brought together key thought leaders and influencers to help the city make the transition to the circular economy, driven by the potential economic, employment and environmental benefits this will lead to. I will return to these topics in more detail when I review the impact of the crisis on capitalism in week 4.

But there is also evidence that some policymakers are going in the opposite direction. In the US, democratic senators Elizabeth Warren and Ed Markey have written an open letter to EPA Administrator Andrew Wheeley, accusing the administration of using the public health crisis as "cover to weaken regulations that protect our nation's air, water, lands, climate, and public health". The risk that in some jurisdictions the health crisis used as an excuse to reverse environmental progress is real.

2. Will economic recovery packages seek to promote a quick return to business as usual or will they see this as an opportunity to support investment in the low-carbon transition?

There is almost unanimous consensus that significant government intervention will be required to bring our economies back to pre-COVID levels. When it comes to the environment, I believe the focus of these recovery packages could go in one of two directions:

Either we decide to rebuild our economies as quickly as possible regardless of the medium to long-term environmental consequences, or we promote a recovery that provides solutions to long-term environmental challenges, with a particular focus on decarbonising our economies.

I believe it to be very likely that the focus on climate change will be an integral part of the recovery in most regions: Much has already been invested in the energy transition by some of the world's leading economies including the European Union; the cost of renewable energy is now competitive compared to fossil fuels;  and perhaps more chillingly, climate related natural disasters will continue to occur in spite of the coronavirus. We can only hope that we are spared a natural disaster while the world is in lockdown. Furthermore, as budgets get tightened because of the COVID-19 fallout, investments in energy efficiency, aided by low interest rates, will become increasingly important, resulting in a drop in emissions.

Early signals show that a number of governments and leading economists are in favour of this more systemic approach.

• Fatih Birol, Executive Director of the International Energy Agency was one of the first to argue that governments “use the current situation to step up their climate ambitions and launch sustainable stimulus packages focused on clean energy technologies”. Dr. Birol also argues that the age of fossil fuel subsidies - over $400Bn p.a. - should end to enable governments to pay for the recovery from COVID-19. 
• In a statement released at the end of March, European Council Members have agreed that the economic recovery package should lead to "a normal functioning of our societies and economies and to sustainable growth, integrating inter alia the green transition and the digital transformation, and drawing all lessons from the crisis". 
• The UK Department for Transport's Transport Decarbonisation Plan launched in early April starts with the words "Climate change is the most pressing environmental challenge of our time" and identifies 6 strategic priorities including modal shift, decarbonisation of road vehicles and decarbonisation of distribution and logistics.
• Businesses are also getting in on the act, driven by an understanding that business models have to change to maintain revenue in a changing world. The shift in approach from leading fossil fuel giants is a case in point. In February BP announced its intention to be net zero carbon by 2050 and to decarbonise its own operations as well as its products while supporting net zero policy measures.

Much of what happens next will boil down to the extent businesses and policymakers see inherent financial and economic value in supporting recovery measures that protect the natural environment and move us away from the threat of climate change. A few years ago one could have made a compelling argument that a choice had to be made between protecting the natural environment and supporting economic growth. This is no longer the case for two reasons: One is the growing awareness of the value of ecosystems services to our economy - quantified at over $125 trillion/year - and the other is the rapid growth in  renewable energy and clean technology markets, not to mention the circular economy.

The real challenge is that the fundamental value of the natural environment is its ability to create an maintain an ecosystem that protects our species in the long-term, yet undermining this ecosystem can deliver short-term financial and economic benefits.

It will require systems thinking and the ability to look beyond short-term interests to plot the right course of action. But the opportunity is real as McKinsey's Matt Rogers and colleagues argued in a recent article on how to address climate change in a postcorona world: "Not only does climate action remain critical over the next decade, but investments in climate-resilient infrastructure and the transition to a lower-carbon future can drive significant near-term job creation while increasing economic and environmental resiliency. And with near-zero interest rates for the foreseeable future, there is no better time than the present for such investments."

 Our current health crisis is forcing national governments, industries and businesses to redefine how they best serve their stakeholders. In that redefinition lies an opportunity to fully align planetary needs with economic urgency.