In a time when the urgency of tackling COVID-19 is superseding any other issue, are we forgetting that climate change won’t wait? Should we set our hopes on the new, greener habits that the lockdown is forcing on us? And what role can investors play in the post-virus fight to save our planet?
Going into 2020, climate change was finally a priority for many governments, but recent events have understandably shifted the focus away. Still, whilst the short-term is uncertain, the long-term climate challenges haven’t changed – and require urgent attention and a significant shift in how we live, work and produce for the coming years and decades. Many have witnessed almost with incredulity the different responses that the two threads triggered: our habits, so hard to change for the sake of our planet, have been dramatically influenced by the virus outbreak. Some of the recent changes in our behaviours, though, are also bringing us closer to a greener planet. It’s worth wondering if they’ll bring lasting benefits, instead of just delaying the inevitable.
WHAT’S HERE TO STAY?
The recent months have influenced some sectors more than others. Air travel – a favourite for business and pleasure, but also a significant threat for our environment – had been growing steadily before being grounded due to COVID-19. What should we expect for the future? Our desire to reduce our dependence on physical travel might last way longer than the outbreak. Fewer flights will benefit the climate but will also reduce the much needed revenue that airlines could use to fund greener fleets. This might present a significant opportunity for investors to bridge the gap.
Our reliance on virtual connections to support both our personal and professional lives has been practically forced on us. Still, experiencing the relative ease and functionality of technology is opening our eyes about its potential to reduce city pollution and our reliance on inefficient transport systems.
The outbreak has also made us think more about home-grown food and self-sufficiency. We’re likely to get more community-centric and less reliant on globally transported goods – another change that may have long-lasting effects, for example a boost for local producers and a reduction of the food sector’s carbon footprint.
Finally, in dealing with Coronavirus, governments have aimed to reassure the public about following the specialist advice, rather than just being driven by political or economic motives. Such commitment will be expected by worldwide audiences when it comes to climate change too – a threat that for decades has been at the centre of the scientific community’s attention.
COVID ALONE WON’T RESHAPE OUR WORLD. WILL WE?
While the outbreak’s impact has partially reduced our carbon footprint, we still use energy to power our everyday lives – and it’s still produced in the same way, using the same technology. Food production still uses the same packaging and manufacturing processes, and transport relies heavily on fossil fuels. Rainforests are still being cut down and sea temperatures are still rising. A temporary lockdown may have slowed global warming, but most industries have long-term transitional requirements in order to get greener. These transitions will come at a cost but will also open new investment opportunities.
THE BOTTOM LINE
Apart from changing our habits, the virus outbreak is having huge economic consequences that will last way longer than the emergency. Governments and central banks have borrowed significantly, to support hospitals at all costs and save economies that were already wobbling. Recovery will be the focus in the following years, and many economic players will even struggle for survival.
Heavily leveraged governments will be under pressure to prioritise spending and make difficult decisions on who and what misses out on support. Climate change funding, impact-investing portfolios, and maintaining and introducing ESG criteria will join the queue and may not be always the priority of public investment.
INVESTING IN A BETTER WORLD
If COVID-19 is teaching us something, it’s that collaboration and cross-border working can be effective and should be encouraged to tackle a global problem.
Estimates of the investment required to tackle climate change range from USD 1.6 trillion to USD 3.8 trillion, annually, between now and 2050¹ – for the supply-side energy system alone. Governments may struggle to raise funds, larger countries will be under higher pressure, and we can expect embittered political battles over fiscal priorities, affordability and adhering to collective responsibility for climate change investment.
Politicians will need to encourage investment in infrastructure projects and stick to pledges and transition timetables. But investors, too, will have the opportunity to contribute to positive change while pursuing high yields. Private investment and the whole investment industry can take the lead in getting green projects the funding and cash flow they need.
Climate change is not going away. It may have been superseded by recent events, but the recent positive strides in tackling the issue shouldn’t slow down, as our planet can’t afford the delay. Also, as we analysed, the global lockdown might be helping the world adopt some greener behavioural changes that might not have been adopted otherwise.
At BNP Paribas Asset Management, we look at investment from all angles. While many sectors are already shifting into greener areas, the focus in the coming months and years will be identifying who will drive the change and be a worthwhile investment opportunity. It will take continued research and dialogue, plus an open mind. With increasing investment vehicles available to access companies at the forefront of climate change, from green bonds to private credit opportunities, everyone can play their part and invest in our future.