The 2020 coronavirus pandemic could be a dress rehearsal for dealing with climate, informing how governments and companies calculate risks and respond to future threats.
That’s a key takeaway from a new article from McKinsey and Co titled, Addressing climate change in a post-pandemic world, which highlights the similarities between pandemics and climate risk.
“The current pandemic provides us perhaps with a foretaste of what a full-fledged climate crisis could entail in terms of simultaneous exogenous shocks to supply and demand, disruption of supply chains, and global transmission and amplification mechanisms,” the authors write.
The consultants note that both are physical shocks, rather than a financial one, their impacts spread quickly across an interconnected world, the situation evolves rapidly moving us into unprecedented territory that is challenging to model and, the impact grows disproportionately once certain thresholds are crossed, for example when the number of patients surpasses the available ICU beds.
Both disproportionately affect vulnerable populations of the world, they require true global coordination and cooperation and, we can’t say we weren’t warned.
“Neither can be considered as a ‘black swan,’ insofar as experts have consistently warned against both over the years (even though one may argue that the debate about climate risk has been more widespread). And the coronavirus outbreak seems to indicate that the world at large is equally ill-prepared to prevent or confront either,” the authors write.
The article also noted there are key differences between the two threats including the speed of onset and the time frame we use to measure each scenario; one plays out in weeks and months, the other in years, decades and centuries.
McKinsey argues both pandemics and the climate crisis require the same fundamental shift from optimising for short term performance to long term resilience.
Healthcare systems, physical assets, infrastructure services, supply chains, and cities have been designed to function as lean as possible, with no excess fat or redundancies built into the system. Now the market may better price in risks and provide a greater incentive to transition to a low-carbon business model.
The authors lay out scenarios in which the pandemic may accelerate action on climate change or it could delay it. For example, lower interest rates could accelerate the sustainable investment market or investors may not have any cash in their pockets to back renewable projects. Similarly, governments and citizens may struggle to integrate climate priorities with pressing economic needs in a recovery or the renewable industry could become a new employer.
The authors outline actions for governments, beginning with building the capability to model climate risk and to assess the economics of climate change. Align COVID-19 recovery efforts with sustainability goals, pull back subsidies for heavy emitters, and start thinking globally.
The authors outline two priorities for companies: take the opportunity to retire carbon-intensive assets and transform with sustainability in mind.
“Companies have fresh opportunities to make their operations more resilient and more sustainable as they experiment out of necessity—for example, with shorter supply chains, higher-energy-efficiency manufacturing and processing, videoconferencing instead of business travel, and increased digitisation of sales and marketing.”
The authors also urged business leaders to better understand their vulnerabilities against a much broader set of scenarios, including physical ones like climate change rather than just financial risks.