The Day After #7 – Climate change post Covid-19: A crisis at a crossroad

June 22, 2020

This year was supposed to be the year when policymakers, corporates and investors charged ahead in the fight against climate change. After the disappointing COP25 in Madrid, shocking wildfires in Australia at the end of 2019, an ambitious plan emerged from the European Union to tackle climate change head on with its Green Deal. Instead, 2020 has become the year of the coronavirus pandemic. COP26 has been postponed, climate strikes have been cancelled and the European Commission’s ability to push through the Green Deal has yet to be proven. However, while the global lockdowns are sure to make a dent in global emissions for 2020, it remains to be seen whether climate change will fight its way onto the agenda into the recovery period or become sacrificed yet again. This is cause for concern. As Christiana Figueres recently wrote in an article for The Financial Times: “We cannot jump out of the frying pan of the pandemic and into the fire of exacerbated climate change .”                                                                                                                 

In this new edition of the “Day After” series, where we explore the impact of the coronavirus on investors, we look at what the coronavirus could mean for climate change in the near and medium term.

The path that climate change is going to take, and the political and private sector reactions to this, could vary widely, with differing consequences for investors. For instance, a timid response to climate change now may trigger a brutal policy response in the next decade, with violent consequences on portfolios.

Our approach is the following: from a highlevel and stylised viewpoint, we study three potential scenarios by considering two underlying “variables”: the political and private sector responses to the coronavirus pandemic. These responses will vary based on different factors, including the length and severity of the economic crisis, debt levels and budget constraints, lower fossil fuel prices and international coordination.

The possible paths that these two variables take will determine the outcome on climate change.

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