Climate change, economy, environment, ESG, retirement, risk management, Socially Responsible Investing, SRI

How Will COVID19 Potentially Affect the Climate Change Debate?

As the severity of the COVID19 pandemic became clear to leaders in China in early 2020, the Chinese Communist Party announced the quarantine of over 800 million people and effectively closed down the economy of China. One of the effects of this shutdown was a dramatic drop in carbon emissions and air pollution.

Paul Monks, professor of air pollution at the University of Leicester, predicted there will be important lessons to learn. “We are now, inadvertently, conducting the largest-scale experiment ever seen,” he said. “Are we looking at what we might see in the future if we can move to a low-carbon economy? Not to denigrate the loss of life, but this might give us some hope from something terrible. To see what can be achieved.” (1)

“What I think will come out of this is a realization – because we are forced to – that there is considerable potential to change working practices and lifestyles. This challenges us in the future to think, do we really need to drive our car there or burn fuel for that,” said Monk.

A study posted in Nature evaluated the impact on carbon emissions. Despite a sharp drop early in the pandemic, global emissions of carbon dioxide picked up in the second half of the year, new data show. (3) “After rising steadily for decades, global carbon dioxide emissions fell by 6.4%, or 2.3 billion tonnes, in 2020, as the COVID-19 pandemic squelched economic and social activities worldwide, according to new data on daily fossil fuel emissions. The decline is significant — roughly double Japan’s yearly emissions — but smaller than many climate researchers expected given the scale of the pandemic and is not expected to last once the virus is brought under control.”

“The United States contributed the most to the global dip, with a nearly 13% decrease in its emissions, due mostly to a sharp decline in vehicle transportation that began with lockdowns in March and continued as the pandemic escalated at the end of the year. Globally, the energy sector most affected by pandemic lockdowns and restrictions was aviation, where emissions fell 48% from their 2019 total.”

“The pandemic has provided a unique lens on the challenge that lies ahead for nations committed to fighting climate change. The United Nations Environment Programme estimates that the world would need to cut carbon emissions by 7.6% per year for the next decade to prevent the globe from warming more than 1.5 ºC above pre-industrial levels — a goal set in the 2015 Paris climate agreement. Reductions on this scale would be even larger than 2020’s drop in emissions.

One of the positive developments from COVID has been the development of “work-from-home” policies for a large portion of the economy. (4) “Twitter, Facebook, and Shopify are among the companies that are allowing employees to work at home permanently. If the trend continues, there could be long-term reductions in oil use, congestion, and car pollution.”

“Environmental goals made possible by shifting from internal combustion vehicles to EVs could be achieved even faster with a concurrent reduction in driving. Nearly half of every barrel of refined crude oil goes to gasoline. S&P Global Platts believes that the pandemic-related shift to remote work could remove between 1 million and 1.5 million barrels per day from global demand.”

In early April 2020 I talked to climate activist, mediator, and educator Jamie Throgmorton about how she thought our collective experience in dealing with Covid19 might affect the climate change movement.

As an activist, one of the challenges is to motivate people to effect change, to see the potential disaster that’s coming. How can the societal experience with Covid19 help an activist motivate people… are there lessons to be drawn?

“I’m sure there are…” says Throgmorton, “Not just in getting people organized, but how systems change happens in these moments of massive disruption. There’s an opportunity to shift and put in new ideas, to get people thinking of new outcomes… that it’s not just a matter of the system returning to a ‘normal’ that’s no longer available.”

She continues, “It’s a really powerful moment. Being a systems thinker allows you to look at the bigger picture. As an activist it’s a moment to feel energized, that there are new conversations about the possibilities that didn’t exist 6 months ago.”

“In their separation people are realizing how broken the system is, how fragile their lack of savings is, how short their resilience methods are… you get separated from people, and become subject to massive government control.”

“I do think there is a big opportunity to grab the interest of people. What I would recommend is to point out connections between what happened with COVID19, (our lack of preparation, poor organization)… and relate it to how we are dealing with the climate crisis, because it is coming, and we have to prepare. People must decide how they are going to change their lives accordingly.”

“We can also connect the science of what is happening in terms of downsizing the economy and the environment… the carbon in the atmosphere is dropping, pollution over cities is dropping, my friend in Dehli called me last week and said he could see stars for the first time in his life, he’s 21 years old.”

“It’s difficult though because even today people are ignoring the reality of the threat from COVID19, many people are confused, and many people don’t want to believe its happening even though its right in front of them. This ought to be close enough to get people’s attention and its not. People can’t think long term.”

I interjected “That’s one of the key lessons; even when its right in front of you the ability of the human species to ignore a problem that is life threatening… thinking it is not going to affect me, it will affect somebody else, and then boom it does… and it’s too late.”

“How do we get people to see how interconnected everything is and to have that inform their actions?” said Throgmorton.

We both agreed part of the solution is the need for real political leadership. But there are other dimensions as well…

As we talked about COVID19, the subject of diet came up. The impact of the disease is directly related to people’s diet and health behaviors. Obese people die younger. If you are obese, you are more than likely eating poor quality food that is no good for people. If you have an alkaline diet, if you are eating vegetables, if you are taking supplements that boost immunity, then you are going to do better. But that takes planning and that’s in your control.

Throgmorton agreed. “That’s right. And a vegetarian diet is in line with what’s required to address climate change… We have to live in a way that makes us less vulnerable.”

You have to get to a mindset where you are teaching people to learn resilience… how do you include resilience in your planning? Not just planning toward a profitable outcome but one that includes managing risk. It’s not just having a million masks but having one and a half million for emergencies.

A great example of this was in a recent Bloomberg article that talked about 3M. The company’s leadership over time has set up additional machines that can be utilized during emergencies, but during normal period they are not operated. The excess capacity is part of the company’s risk mitigation… this helps the company long term, but it also helps society to deal with unforeseen events. Setting aside 10% of your profits pays dividends down the road.

The challenge is shareholder capitalism and short termism encourages managers and CEOs to extract the maximum profit regardless of potential risks.

Throgmorton states, “Resilience means not just that I’m healthy, but that I’m better able to help my family and society if I am healthier.”

To accomplish this, “That takes training and a different way of educating youth. Education is key.”

Resilience and managing risk can help manage disruptions that arise from progress or change. But I remind Throgmorton, one must understand that there is also going to be reaction against progress. That is the nature of any revolution or change. Every revolution comes with an age of reaction against change. You must prepare and be able to fight against that reaction.

This conversation is not happening in isolation.

“Investors will give companies more space to deal with short-term crises, but this has just made it ever clearer what’s at stake and what’s needed to build more resilience in the future,” said Beau O’Sullivan, communications manager at U.K. non-profit Share Action. (2)

Managers and CEOs are being forced to re-examine sustainability, corporate governance, renewables, worker policies and treatment, health care and diet, decarbonization and the benefits of a circular economy. “The virus has unexpectedly turned out to be ‘a stress test’”, says John Goldstein of Goldman Sachs.

The challenge for the economy in 2021 and 2022 has been the damage done to supply chains and the rise in inflation. These large side effects from the shutdown of the global economy need to be remembered as we work towards reducing our dependence on fossil fuels and moving to a sustainable economy.

To address resilience, it is important going forward to integrate risk management and socially responsible investing in retirement portfolios. To discuss how such an approach may benefit your financial plan please feel free to email me at james.cox@glic.com

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  1. https://www.theguardian.com/environment/2020/mar/23/coronavirus-pandemic-leading-to-huge-drop-in-air-pollution
  2. https://www.bloomberg.com/news/articles/2020-04-08/covid-19-may-change-sustainability-as-we-know-it-green-insight?sref=qbSjPdvo
  3. https://www.nature.com/articles/d41586-021-00090-3
  4. https://electrek.co/2020/05/28/work-at-home-trends-could-mean-a-permanent-reduction-in-oil-use/