08 June 2020

CDP: Economic renewal must catalyze the transition to a sustainable future – we must build back better

We cannot afford to go back to normal. We must reinvent and renew our economy into one that is more resilient, inclusive, sustainable and zero-carbon. If we prop up the old system, against the backdrop of increasing and impending climate change hazards, we risk locking in a pathway of greater risk.

We are in the midst of an extraordinary crisis. The COVID-19 pandemic is primarily a health crisis – but one that has morphed into a burgeoning economic crisis, shining a light on inequalities and vulnerability in society. We have been plunged into a world with more uncertainty – and as we begin looking towards different stages of recovery, governments across the world are asking themselves some tough questions: how will they re-open the economy? How will they minimize the impacts of a potential recession? How can we get back to normal?

But we have a choice. We can set a better course: as governments pump trillions of dollars into long-term stimulus packages, they should ensure that climate action is fully embedded in them – through green ‘conditions’ and wider support for cross-industry transitions to net-zero emissions.

A critical juncture

As we emerge from this crisis, and look towards recovery, we will find ourselves at another junction in the road. The actions we take now will affect both current and future generations - and create a roadmap for both companies and economies to follow for many years to come.

Recovering and shifting towards a more sustainable, net-zero economy will be a challenge - but it’s important to note that this won’t be a standing start. We have been building momentum. We should take stock of the groundswell of actions by companies, investors, governments and other non-state actors thus far and take concrete steps to enhance and accelerate them. These enhanced climate actions must then become the norm.

For example, at CDP we have been mainstreaming corporate environmental disclosure for almost two decades, growing from a few hundred companies responding to our disclosure request to over 8,400 companies with over 50% of the global market capitalization now disclosing their environmental data through our platform. Over 870 companies have also joined the Science Based Targets initiative – a critical step towards aligning emissions reductions targets to the Paris Agreement.

 

We must continue to scale up corporate action. By attaching climate friendly ‘conditions’ to stimulus packages, governments can encourage and accelerate companies to ramp up investment into more low-carbon and circular business models.

To build further resilience, companies that receive long-term financial assistance should also be required to disclose risks and other climate related financial information aligned with TCFD recommendations and to set science-based targets in line with the goals of the Paris Agreement - in order to reach net-zero emissions by 2050.

The Canadian government has recently linked their recovery package with action on climate change by requiring companies that receive financial assistance to commit to publishing annual climate-related disclosures consistent with the TCFD framework.

Companies that disclose their environmental information, measure and manage risks, invest in the transition to a net-zero economy, and set robust science-based targets will increase their resiliency and thrive in the future.

State-led solutions

Beyond necessary short-term measures to help businesses weather the sharp economic downturn, we urge governments to begin ‘future-proofing’ their economies and societies by investing in more resilient and sustainable measures – such as renewable energy, low-carbon infrastructure, sustainable agriculture, and ecosystem restoration and protection – which would improve the lives and livelihood of people and protect the economy from future shocks.

If we look back to the 2008 financial crisis and the subsequent economic recovery packages, we can find some helpful precedents and lessons, despite the difference in context. Some governments, including Europe and the United States, incentivized renewable energy – at a time when manufacturing was still small scale and costs were high. Now, wind and solar power are more cost-competitive and are ready to scale. Increased incentives would likely drive down costs and result in a reduction of emissions and improvement in air quality. What we must avoid is a COVID-19 renewal response that locks in high carbon emissions, rolls back any environmental protections in place, and ultimately unravels the climate ambition and momentum achieved thus far.

Without any long-term commitments and guidance from governments, the reopening of the economy may cause a rebound or a sharp spike in emissions from sectors looking to make up for lost time. And while there may be a temptation to green light business-as-usual, resource and emissions intensive projects to kick start the economy – we should favor longer term resilience and building a better economy for all.

At CDP, we found through disclosures that the potential value of sustainable business opportunities heavily outweighed the costs of realizing them (US$311bn in costs vs US$2.1tn in opportunities) – and the same principle can be applied here. With climate change along with pandemics, the costs of global crises are always likely to exceed the costs of its prevention.

With an eye to the future, these long-term packages can also create millions of ‘green’ jobs, increase resiliency within our systems, address socio-economic inequalities and combat climate change. Our recent Europe report with Oliver Wyman, a leading management consultant firm, found that investments in a variety of green infrastructure projects could amount to over €1.2 trillion in new business opportunities – equaling to more than six times the amount needed for the investment to realize them.

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