Government's response to Covid-19 is an indicator of inevitable disruption ahead from exacting climate policies, warn PRI and Climate Works Foundation
The world is heading for a "climate lockdown" unless businesses, investors, and governments rapidly act to address the mega-risks that will result from the inevitable escalation of climate policies in the coming years, the heads of leading global investor and climate groups have warned today.
In a joint article for BusinessGreen, Fiona Reynolds, CEO of $86tr UN-backed investor group Principles for Responsible Investment (PRI), and the Climate Works Foundation director Ilmi Granoff argue that while business leaders are inevitably focus on tackling the global pandemic further climate-driven disruption is inevitable in the future, and that it is therefore critical for business leaders and policymakers to better prepare for the net zero transition.
Despite the threat of a global pandemic having been a top 10 global risk outlined by the World Economic Forum for a decade, the coronavirus crisis gripping economies around the world demonstrates "just how unprepared we were for the inevitable", they write.
Lessons must therefore be learned from the collective failure to adequately prepare for a crisis of such monumental proportions despite repeated warnings, in order to prepare for the looming climate crisis and impending rapid shift away from carbon-intensive industries, processes, and services, they argue.
They argue that a forceful, disruptive, and disorderly policy response to climate change is far more probable than businesses and investors are reckoning with, and firms must therefore act rapidly to create actionable strategies to prepare them for these "mega-risks".
"Climate change's 'transition risks' of regulatory and techno-economic change are often modelled as gradual changes precisely because it is the least financially and economically disruptive path," the article states. "But there is good reason to believe that the shape of the policy response to climate change will have more in common with a pandemic 'lockdown' than is immediately apparent. The speed and severity of policy change may be different, but have no doubt that policymakers will act forcefully in a crisis."
It follows a PRI-led study of climate policies around the world last year which warned trillions of dollars could be wiped off valuations of some of the world's largest companies as a result of escalating policies, regulations, and laws to tackle climate change.
The implementation of policies such as bans on fossil fuel cars and tougher rules to combat deforestation in supply chains threatens to permanently wipe between 3.1 and 4.5 per cent - or $1.6tr to $2.6tr - off the valuations of firms in the MSCI ACWI index, the study found, and such policy action is only set to get stronger in the coming years.
Covid-19 should therefore serve as a wake-up call for the companies and investors to get ahead of net zero transition risk by carrying out financial risk analysis in line with the guidelines of the Taskforce on Climate-related Financial Disclosures (TCFDs), they argue.
"The hope is that today's once unthinkable crisis expands our horizon on not only the possibility, but the high probability, of large-scale, climate-driven disruption to society, the economy, and the market," they write.
The calls come amid growing pressure from businesses, investors, and campaigners for governments to ensure any state investments or support for struggling industries in order to jump-start economic recovery from Covid-19 incentivise decarbonisation and avoid locking-in high carbon infrastructure for years to come.
Reynolds and Granoff also argued the fiscal stimulus on its way from governments presented "an immediate opportunity" to help tackle climate policy risks.
"We have the opportunity to green that stimulus or shovel money into carbon-intensive sectors and load the economic with further risk," they write. "It is a crucial opportunity to minimise the severity of a future carbon lockdown. This pandemic is a lesson for what happens when we don't prepare. Let's make sure climate change isn't."
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