The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect GRESB’s position.
Concerning the Final Wave
Concerns are emerging that the second wave of COVID-19 pandemic may be about to sweep the world as economies continue to reopen after lockdowns. There are also concerns about the final wave – climate crisis. We have seen the impacts of COVID-19 in governments, businesses, and people. With limited health care capacity, taking early action, such as staying at home, washing hands and social distancing, could reduce the overall infections to keep cases at a manageable number for hospital to handle. From a short clip of the Canadian government, we understand graphically the importance of these measures in flattening the curve, where the curve represents the number of people getting sick over time. When a lot of people get sick over a short period of time, the curve rises faster, and it is more likely to surpass the level of which the health care system will be overwhelmed. This is similar in managing the climate crisis. When limiting the emissions associated with human activities by climate protective measures, there are still chances to keep the global temperature (the curve) rise below 2 degrees (the threshold) and avoid the catastrophic consequence of climate change. To flatten the climate curve, we shall decarbonize the economy by investing in green projects. A comprehensive recovery plan shall be introduced to integrate both pandemic and climate crisis into a response to overcome challenges.
Addressing Climate Change as a Systemic Risk
Similar to the pandemic, climate change is a severe systemic risk. With frequent extreme weather events and associated environmental and social issues, more economic losses are caused. The financial market can be destabilized with the unpredictable nature of climate impacts and therefore brings negative economic consequences to financial institutions, government, and businesses. Ceres, a sustainability non-profit organization working with the most influential investors and companies, believes that key U.S. financial regulators should address climate as a systemic risk and take action to protect the financial system and economy from the potential threats. ¹ Key financial regulators are, for instance, Federal Reserve System, Securities and Exchange Commission, State and federal insurance regulators, the Federal Housing Finance Authority, and so on.
Climate Engagement with Corporates
In addition to the critical role played by the financial regulators in terms of potential climate shocks, it is observed that many investors and banks have started to engage with corporates on climate governance, strategy, and disclosures. The purposes of the engagement between investors and corporates are to align the investment meeting with the global target 2 degrees and integrate climate factors within the investment process. Through collaboration with company management and alignment with Task Force on Climate-related Financial Disclosures (TCFD), climate risk shall be identified. Hence, risk management could be enhanced and the climate risk mitigation to society could be strengthen by the identification of climate risk. It has proven that companies with a higher alert to existential risk performed better and showed higher resilience in the financial markets over crises like the pandemic. This emphasises the importance of acknowledging and mitigating the threats like climate change.
Decarbonizing the Economy with Recovery Plans
Through the lens of strategy, we shall approach both pandemic and climate crisis with a comprehensive response and set measurable targets to build sound business continuity plans and manage risks. There are recovery plans at local, regional, and national levels, for instance, the European Commission’s Recovery plan for Europe and the International Energy Agency (IEA)’s Sustainable Recovery Plan. One of their common goals is to reduce carbon emissions while the governments offer stimulus packages in the next three to seven years. Both organizations concur that sustainable energy systems shall be established in long-term economic growth and climate-resilient future. It would not only revitalize economies and boost employment but also put emissions into structural decline and improve human health and well-being by reducing air pollution emissions. ²
The current crisis has reinforced the critical need for governmental intervention to accelerate sustainability. In particular, the European Commission’s plan, together with the European Green Deal, would support the green transition into a climate-neutral economy ³ in:
- Modernizing buildings and critical infrastructure, including building a million charging points for electric cars;
- Integrating circular economy; and
- Adopting Farm to Fork Strategy, Biodiversity Strategy, and Forest Strategy.
With policy support that corrects the market failure, the private sector shall benefit and be able to pursue a cost-effective low-carbon transition. Companies can also attract investment by positioning themselves at the forefront of climate ambition and showcasing their net-zero innovation during the green recovery. Business leaders shall build resilience to physical and transitional risks brought by global warming and improve energy efficiency to reduce costs in operation.
¹ Ceres (2020) Addressing Climate as a Systemic Risk
² IEA (2020) World Energy Outlook Special Report
³ European Commission (2020) Recovery plan for Europe
This article was written by Taurus Kwan, Consultant at Allied Environmental Consultants Limited.