Covid-19 has resulted in unprecedented economic shutdowns globally. At its peak, factories fell silent and transport networks became dormant, resulting in the largest drop in global carbon emissions since World War II. However, this year-on-year fall pales in comparison to the sustained drop in global carbon emissions necessary to avoid the worst impacts of climate change. In addition, major drops in emissions primarily impacted transport and industry — which only account for one-third of global emissions.
In a previous article published in The Edge Singapore — “Covid-19 and climate change” — we laid out the urgency of a green recovery following the coronavirus pandemic. One in 10 Southeast Asian citizens are at risk of displacement due to climate change, with the region facing risks of catastrophic economic losses of up to 90% of GDP per capita by 2100 if temperatures reach 4°C above pre-industrial levels. In this article, we seek to lay out 10 imperatives that can accelerate a green and resilient recovery.
A pivotal moment for climate
Despite Covid-19 dominating news cycles, climate remains top of the public agenda. In a survey undertaken by Boston Consulting Group (BCG), about 70% of global respondents have been made more aware of the interconnection between human actions and the climate as a result of the Covid-19 pandemic. Encouragingly, more than 70% also believe their actions now actively help meet environmental targets, almost one-third more than before the current crisis.
Globally, unchecked climate change continues to pose a catastrophic economic and physical threat to society. The efforts of governments and private sector institutions will be foundational to steering a green recovery in the post-Covid-19 reality. Meaningful climate action requires significant investments, with analysis widely indicating that between US$2 trillion ($2.8 trillion) and US$4 trillion of investments are needed annually to steer towards a 2°C pathway.
Covid-19 has shown how quickly governments can react to crises, with over US$10 trillion committed globally so far to tackle its impact. However, just US$400 billion is focused on green investment. In Southeast Asia, an estimated 0.5% of US$290 billion pledged is sustainably focused. This period of disruption is an opportunity to push for a deeper green recovery.
The International Energy Agency (IEA) estimates a sustainable recovery from Covid-19 would boost economic growth by an average 1.1% annually, saving or creating roughly nine million jobs. That growth represents material benefits beyond avoiding the catastrophic physical and economics costs of climate change. There are paths that will revitalise economies, create jobs, and progress a green agenda.
Building a better, greener future
At BCG we have identified 10 priorities, five each for governments and private sector players, to scale green recoveries following Covid-19. The focus areas will be specific to the country, industry, and company involved. However, we believe some versions of these 10 priorities will be applicable to relevant organisations in public and private sectors.
Prioritise sustainability in stimulus strategies that embeds green priorities. This should focus on both decarbonising existing sectors with high greenhouse gas (GHG) footprints, and funding new green growth sectors. In some areas, this would include weaving “green strings” in stimulus packages, such as adherence to climate disclosure standards or sustainability targets.
Focus on high jobs-creation opportunities by prioritising green recovery investments and programmes with significant job-creation potential such as supporting large-scale renewables and low-carbon transport sectors. As an example, Malaysia is considering investment to accelerate its large-scale solar (LSS) adoption, which could result in thousands of new jobs.
It will also be important for countries to balance mitigation investments that help decarbonise their economies with adaptation investments to build future climate resilience. Infrastructure investments such as flood protection can simultaneously create jobs, stimulate the economy, and build long-term economic resilience.
Prepare for complex job transitions that recognises and addresses some of the clear challenges in green economy transformation. As economies transition, some sectors will decline, while other sectors will grow. We believe it is important to prepare early to manage a “just transition” of the workforce towards a zero-carbon economy. In the context of Covid-19 recovery, some sectors will have radically changed once economies restart. Governments can learn from this experience and better steward the longterm job transitions to come.
Increase leverage of blended finance as an opportunity to increase the pool of capital by combining private sector sources of funding with public sector or development financing. This both increases the volume of funding available and reduces the hurdle rates required for investment. In some areas, this will require the setup of platforms that match climate-related projects to sources of funding.
Reboot multilateralism in climate action. The global challenges posed by climate change require a multilateral response. Unfortunately, the Covid-19 crisis has shown the fragility of multilateral action in some areas. The climate crisis will require coordinated responses in areas such as equitable resourcing, and coordinated efforts to protect global public goods, such as the world’s forests. These efforts cannot be achieved without global cooperation.
Steering the business response
While governments will design the framework for this future landscape, businesses and investors will be crucial to ensure green growth flourishes within it. These are five key priorities to steer private sector decision makers.
Reduce costs by reducing carbon through embracing energy efficiency programmes and switching to renewables. BCG’s global experience shows us that 20%-40% of enterprise emissions can be reduced through energy efficiency, fuel switching such as onsite solar PV, green power purchase agreements, and industrial process improvements, which yield positive business results in terms of cash flows and NPVs.
Scrutinise supply chains to understand the true carbon burden of your processes. On average companies report greenhouse gas emissions in their supply chains 5.5 times greater than their own direct emissions. Companies can begin by building transparency into supplier emissions, and introduce CO2 into procurement and supply chain reconfiguration decisions. This will enable them to commit suppliers to rigorous efficiency and emission reduction targets over time.
Finance green recovery to scale investments across a broad climate-resilient and growth-focused portfolio. Chinese electric vehicle (EV) manufacturers’ investments in the EV market is an example of pursuing growth opportunities in a decarbonising world.
Increase climate-risk resilience by decarbonising portfolios and enhancing environmental, social, and governance (ESG) factors. These not only reduce your direct vulnerability, but position your organisation as far more attractive to investors who increasingly focus on sustainability considerations.
Integrate climate into your investment process to emphasise its importance in wider investment decisions and capital allocation processes, while pushing adoption of climate-related reporting and integrating climate risks into financial models of the business. This is a long-term problem, and these will become increasingly important steps to protect the long-term viability of businesses. For example, Singapore’s state investment firm Temasek has publicly set a target to halve the GHG emissions profile of its portfolio by 2030.
Covid-19 is a once-in-a-generation challenge that presents a once-in-a-lifetime opportunity to inspire green roots of growth. The global community is prepared to deploy trillions of dollars in response to this current crisis. It cannot overlook the next.
The next global crisis is not over the horizon; it is shrouded in the fog of the current pandemic. In emerging from this period of extreme volatility, one certainty we must acknowledge is the pivotal global opportunity to unlock the benefits of a sustainable green recovery.
The authors are all from Boston Consulting Group. Dave Sivaprasad is managing director and partner; Stefanie Khaw is principal; and Anis Mohd Nor is project leader.