When it comes to the most discussed, debated and dissected existential risks of our time, climate change has reigned supreme. Then came the coronavirus pandemic. While the ultimate depth and longevity of the pandemic will likely differ from climate, the current situation offers parallels in terms of a visible demonstration of large-scale risks to health, the economy and our daily way of life.
We hope that sound social behaviors and scientific development allow us to stabilize and manage the coronavirus as much as possible. But regardless, the pandemic will have a long-lasting impact on how we look at the world, our psyche and our roles within it.
The business community will not escape this shift and must react accordingly. We believe the pandemic will reshape several factors and mental models that influence how corporations behave with respect to sustainability initiatives, with the potential to largely cause an acceleration in those efforts. Likewise, it is important to reflect on how sustainability and purpose-driven strategies influenced how some corporations responded to the coronavirus in the first place. This outside-in (corporate response to coronavirus), inside-out (coronavirus’ influence on corporate sustainability moving forward) lens serves to deepen the understanding of the relationship between coronavirus and climate action.
The coronavirus pandemic came at an interesting moment for the corporate community. In the few months leading into the crisis, there was significant discussion around the core purpose of the business community in the world, highlighted by leaders like Larry Fink of Blackrock, new and more aggressive sustainability targets being set, and a need to increasingly respond to stakeholders in real-time about climate action.
In a few short months, the corporate community made unprecedented changes to their business in response to the coronavirus. Many of these companies should be applauded for their actions – both in terms of their community-centered efforts and the speed and boldness of their response. These companies quickly identified the distinct role they had to play, and the urgency required to do it, in a way that feels wholly consistent with the necessary climate action embedded in their strategic agendas.
Many of these companies are also leaders in sustainability. Microsoft, which recently announced bold carbon negative plans and has a long track record of deep carbon pricing, was the first major U.S.-based company to move their employees remote, shifting nearly 90 percent of their workforce to work from home in just one week and paying hourly workers full wages for reduced hours. IKEA, which aims to be carbon positive by 2030, mobilized quickly to furnish hospitals in affected areas, turned stores into testing facilities and announced a grant of €26 million in-kind donations. Nestle, a recognized leader in sustainability, quickly introduced enhanced safety measures across all distribution centers, arranged sick leaves and cash loans for employees, and made generous donations to emergency services providers. These are just a few examples of many.
Much like climate action, resilience amidst a pandemic requires bold, collective action, investment and rapid innovation driven by data and science. Companies well anchored in this mindset benefitted in their response to the coronavirus by delivering purposeful action, quickly.
One observable way to understand this positive outcome is through share performance. Indeed, in most cases ESG managed funds outperformed non-ESG rivals in the first quarter of 2020. While strong market performance is just one of many important drivers for sustainability efforts, data like this demonstrates a link between climate commitment and long-term resilience to disruption.
Early economic estimates predicted that the coronavirus would decrease global GDP by .1 percent, roughly the size of the decline during the global financial crisis of 2009. Just three weeks later, the estimates have grown increasingly severe, with the IMF projecting a 3 percent decline in global GDP in 2020. Though recovery time is unknown, optimistic projections speak in months, whereas those that are pessimistic estimate years.
Climate change presents risks of similar dimensions, but with an impact that is perpetual. Oxford Economics estimates that, at our current pace, climate change is estimated to decrease the global GDP by 2.5 to 7.5 percent by 2050, with very grim prospects of recovery.
Another coronavirus-to-climate comparison can be made via the pure ‘shock’ of the coronavirus to that of climate-related weather events, which cause significant devastation quickly. Of note, the coronavirus is a global issue, versus the local or regional nature of weather events.
There is a critical lesson that the coronavirus can teach us that will help accelerate our focus on climate. Facing the imminent threat of coronavirus, the world came together in an unprecedented fashion to prioritize humanity over economics, something that just a few months ago seemed unimaginable. With this order-of-magnitude economic pain as a backdrop, can we one day view climate change, too, as an imminent risk? Can we find the right balance to collectively improve the economy and the environment in a harmonious way?
Our biases make it difficult to account for circumstances we’ve never witnessed. These biases lead us to underestimate both the likelihood and the scale of impact from these increasingly severe crises. Strong climate action has been hampered by this.
In the case of the coronavirus, we’ve seen cascading events that drove exponential impact at a scale that economists have struggled to predict. Stay at home orders disrupted supply chains and shifted consumer demands. As consumers stayed inside, tourism and hospitality industries ground to a halt, driving mass layoffs and furloughed workers. In the U.S., real unemployment was estimated at 25 percent, in Europe one million firms claimed state subsidies for the wages of inactive staff. Retail sales plummeted worldwide, governments faced sharp declines in tax revenues. Uncertainty drove market volatility that further strained business, then workers, then consumption. Businesses that moved quickly to meet rising demands experienced unexpected delays in orders due to disruptions in their obscured, complex supply chains.
The rapidly escalating economic and social crisis has driven immediate action. The coronavirus is expected to cost the global economy $4 trillion during 2020. By early April, the public and the private sector had quickly mobilized to infuse over $7 trillion into the global economy to mitigate the potential damage and accelerate recovery.
The cascading impact of climate change follows a similar narrative, as does the costs of mitigating it relative to the damage (not to mention the economic upside). While estimates vary, research shows that investing $1.8 trillion over the next decade to adapt to climate change could produce net benefits of $7 trillion.
In both the case of the coronavirus and the climate crisis, the costs of mitigation are far lower than the worst outcomes. As such, a similar urgency must be applied. Businesses now must begin to better apply this thinking in their decision-making processes when evaluating sustainability and resilience-related solutions and actions.
When we solve for existential threats collectively and with the urgency they require, we can mobilize changes in our behaviors, our workforce, our infrastructure and our tools. The current pandemic proved we can do three things that are widely seen to be essential for successful climate action, quickly.
These same ongoing efforts can and must be accelerated in our fight against climate change.
This pandemic has revealed a significant shift in consumer expectations. According to the Edelman Trust Barometer, consumers overwhelmingly have expected brands to shift products they produce, protect their employees, partner with government and keep the public informed.
These rising expectations present companies with a unique opportunity to fulfill their brand promise. Corporate leaders should take this moment to think deeply about their purpose and their legacy in order to build a plan that supports the communities they serve, using the core competencies that make them great.
Several businesses leveraged their strengths to respond quickly and authentically to the crisis in a way that built trust with consumers. AstraZeneca donated nine million face masks to healthcare workers. P&G donated health & hygiene supplies from 30 brands in more than 20 countries. Anheuser-Busch InBev launched the One Team campaign, converting breweries to produce hand sanitizer and reallocating funding from sports advertisements to support the Red Cross. The Tata group mobilized software to advance distance learning. LEGO launched a free site to encourage play-based learning for children quarantined at home.
Before coronavirus, corporations were doubling down on climate action. Rather than diverting funding and focus away from sustainability initiatives, we should anticipate an acceleration of this trend. Employees and consumers will emerge from this crisis with an even stronger sense of collective responsibility and will expect the same of corporations. There will be less patience for businesses to shift focus from community needs and return to business as usual. Instead, successful companies must use the momentum and trust that they’ve built to further ambitions and accelerate change on critical issues like climate action.
There are no silver linings in a crisis like the current pandemic. But, if corporations can harness the learned actions and maintain a better understanding of the world we live in, it may just help avoid an even larger, more permanent crisis in our lifetime.