15/06/2020

Our Pandemic Response Was A Disaster. We Can't Afford To Make The Same Mistakes With Climate Change

Business Insider - Patrick Bolton | Marcin Kacperczyk

  • The COVID-19 crisis shows that we need to be prepared and act quickly in response to the climate crisis.
  • The climate change crisis is our next great challenge, but we must learn from the mistakes of our response to the novel coronavirus.

Rosie Perper/Business Insider                     

Authors
  • Patrick Bolton is the Barbara and David Zalaznick Professor of Business at Columbia University and Visiting Professor at Imperial College London.
  • Marcin Kacperczyk is a Professor of Finance at Imperial College London.
As COVID-19 rocketed across the globe, many countries took swift, drastic action to lock down their countries in order to save lives.

At every economic level, communities quickly adapted to new public health requirements in order to protect against the spread of the disease.

In a matter of months, every major city across the globe shut down activities that put people at risk. It has come at a devastating cost, but concern for the science behind this dangerous virus has largely prevailed.

This moment is not to be celebrated. But the lessons we have learned in the COVID-19 outbreak will pave the way as we confront a climate change crisis that is already causing a catastrophe. It can feel insignificant in comparison to the global pandemic, but we entered 2020 on fire, literally, the Australian wildfires destroyed 27 million acres in a matter of weeks. And in the first five months of  2020 surpassed 2019 as the warmest start to the year on record.

If we have any hope of surviving and emerging from the climate crisis, we need to view the swift and strong reaction to COVID-19 as a dry run for the action needed to meet the challenges of a warming planet. The changes we must make will require a radical departure from the norm, and we will need to sustain these changes.

The COVID-19 crisis shows we can be prepared and act quickly.

Countries that have so far mitigated the health costs of COVID-19 – including Germany and South Korea – have shown the importance of preparedness in reducing the impact of a crisis.

These countries recognized the need for spare hospital beds, trained nurses, testing kits, and PPE, to confront the pandemic. Countries with more redundancy in their resources have endured a smaller health shock than others – a note all countries should take before the climate crisis hits hard.

The coronavirus outbreak also painfully reinforced the importance of international cooperation in solving a global crisis. During the Great Recession, the world's leading central banks collaborated with the G20 on a coordinated economic response.

But at the early stages of this pandemic, the global response was disjointed and leaderless If the global community could have worked together on testing and screening, it's possible the global outbreak might have been less severe.

It's time to get ready for the next crisis

It is time, even in the midst of the coronavirus crisis, to start taking stronger action to address climate change to soften the blow of the approaching climate shock.

Just as we should have had better-prepared healthcare systems for a pandemic, we should be better prepared to react to climate change with a more sustainable economy. This means implementing climate mitigation policies such as carbon pricing, the integration of sustainability into financial practices and accounting frameworks, the search for appropriate policy mixes, and the development of new financial mechanisms at the international level.

History has shown us that green-focused economic recovery plans are more beneficial than their traditional counterparts in both the short and long-term. Research from our colleagues at Columbia reveals that green projects not only deliver jobs off the bat, they also work toward a carbon-conscious future.

Businesses and governments should start with factoring climate-related risk analysis into financial stability monitoring. Central banks and the financial sector must start treating climate change as a "green swan" risk: an extremely disruptive event that could ignite a chain reaction of financial and political crises. Their leadership to mitigate the climate crisis could mobilize action among governments, the private sector, and the international community.

Encouragingly, our research reveals that financial markets are beginning to factor in the risk of climate change. Even though companies with high carbon emissions may offer investors high earnings, investors are demanding more from these companies in terms of stock returns because of the risk associated with climate change. In the future, these companies may be starved of capital.

Private sector banks, including Barclays and Standard Chartered, are reorienting their investments to measure the carbon emissions of their portfolios and reduce their exposure to companies that pollute.

The transition to sustainability cannot happen overnight. Actions at all levels are needed and each one requires a careful assessment of the costs and benefits, whether economic or social. Blunt regulations that suddenly punish everyone could end up being counterproductive. What we need are fairly targeted interventions that focus on the parts of the economy where the benefits are greatest relative to the costs.

And we must start now. The COVID-19 pandemic has demonstrated that we have the capacity for bold global action. But the expression flattening the curve carries an implicit note of optimism – suggesting that the wave will pass. The climate crisis, unlike the coronavirus pandemic, will not pass. The changes it brings will be permanent.

As we recover from coronavirus, our aim shouldn't be to go back to normal but to take the lessons we've learned to strive towards a greener future.

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