Updated: Oct 23, 2022
COVID-19 represents an unprecedented, still unfolding shock to the world economy. The shutdown in economic activities due to the pandemic crisis has determined a short-term drop in global carbon emissions during 2020, though most of this decline has reversed since government restrictions have been loosened. As such, the temporary drop in emissions will not yield the vast and persistent fall in emissions required by the 2015’s Paris Agreement on Climate Change to reduce the rise in global temperature to well below 2°C. Research has shown how stricter financial constraints as well as economic decline are correlated with weaker corporate environmental performance and fewer green investments.
Given the relative newness of this event, it is difficult to determine its long-term effects on companies’ sustainable performance. In terms of entrepreneurial, managerial, and policy making implications, three takeaways may be considered for further discussion.
1. Adapt to changing behaviours
The Covid-19 outbreak has increased people’s awareness of climate change’s impact and their fear of other sanitary or environmental catastrophic events taking place in the near future. An international study has shown consumers’ concern and feeling of guilty about their current unsustainable lifestyle (see Figure 1). As such, they are willing to contribute to the planet preservation, by reducing their consumption pattern and rewarding companies offering more sustainable products and services. As a result, companies like Zalando and L’Oréal are trying to respond to this new consumers’ aptitude through more sustainable offerings and packaging.
Figure 1. Environmental Attitudes
Source: Globescan (2020: 4).
2. Follow the trends
Covid-19 disruption has also resulted in sustainable investing (SI) strategies and instruments with a comparable or better performance than their conventional equivalents. The past-years growth in SI assets under management (AUM) is expected to be even stronger due to the pandemic impact. It is likely that the environmental topic will spur many other long-term investments with particular focus on renewable energy, sustainable transport, biodiversity and green bonds. As ESG investment strategies are more widely adopted, issuers will be affected by investor decisions on ESG guidelines. Perhaps, during the last years a growing number of asset owners have pledged to divest from fossil fuels. This has encouraged the major banks and insurers to restrict their financing and financial hedge to the sector (see Figure 2).
Figure 2. Institutional Investor Fossil Fuel Divestment Pledges
Source: IMF (2019: 84).
3. Have a long-term vision
Many green initiatives and packages are currently underway to tackle Covid-19 pandemic. However, if every new crisis is managed by taking as reference the current economic system and implementing short-term solutions, future shocks will continue to exceed capacities. It is thus essential to devise long-term risk-mitigation and sustainable fiscal thinking with the objective to abandon the current economic pattern centred on profits and an unbalanced economic growth. Perhaps, Circular Economy may be a successful strategy to revolutionise the current industrial system based on a “take-make-dispose” energy flow model. Schneider Electric is a positive example of a company using recyclable materials in its production process and prolonging its products lifespan through pay-per-use and leasing systems. This could be the future of many other companies worldwide.
What do you think about the three highlights introduced above? For example, could they be effective to counteract the negative impact of Covid-19 pandemic and assure companies competitive sustainable advantage?
I would love to hear your thoughts.