Stepping Up to a Sustainable Future Post-COVID-19

by Richard Mattison May 2020

As the world continues to tackle the coronavirus pandemic, we take a moment to consider how the crisis could affect the way we address the other global systemic risks, such as climate change.

Richard Mattison,
CEO,
S&P Global

We have already started to see news reports on the connection between the pandemic and climate-related issues. Satellite images show a marked fall in global nitrogen dioxide levels as the slowdown in non-essential travel and industrial activity has improved the air quality in major cities and other industrial heartlands in Asia and Europe[1]. At a global level, scientists predict annual carbon emissions may drop by more than 5% – in what would be the largest fall since the end of the Second World War[2].

When the immediate health crisis and economic downturn are over, the world will be presented with a choice. Carbon emissions could come surging back if countries lean heavily on carbon intensive energy sources and historically low oil prices to rebuild their economies. Alternatively, countries could mobilize stimulus packages that align with global climate goals and respond with renewed vigour in tackling the climate crisis. This could be an opportunity for businesses to embrace strategies that decouple growth from emissions.

Decoupling growth from emissions

One of the tools companies have used in recent years is to set carbon reduction targets that align with the central goal of the Paris Agreement to limit global warming to well below 2°C. While a growing number of businesses are measuring and reporting emissions, and many are setting reduction targets, those that are aligned with the goal of limiting global warming to well below 2°C have been in the minority. However, there is an opportunity for companies to start implementing ‘back-to-work’ strategies that align with global climate goals. We have explored what this might look like for three areas of business.

Shipping Freight

According to data from Panjiva, part of S&P Global Market Intelligence, lockdowns around the world have had a significant impact on trade. US seaborne imports from China, for example, fell 59.5% year-on-year in the first three weeks of March. In response, companies have been relocating their production bases to reduce disruption risks. This process, known as “proximity sourcing” or “re-shoring” has been more prevalent since the onset of the US-China trade dispute but has accelerated in recent weeks as the pandemic has worsened.

Figure 2: Year-on-year change in seaborne imports to the US, by country of origin, Jan-Mar 2020

 

Source: Panjiva, (2020). Q2 2020 Outlook.

However, this may present an opportunity for companies to redesign their supply chains in accordance with global climate goals. Global shipping accounts for about 3% of global carbon emissions[3] and while not directly included in the Paris Agreement can contribute significantly to a company’s upstream and downstream carbon footprint. However, our projections show that just a 7% reduction in dry cargo trade would align carbon emissions from the shipping sector with a 2°C scenario by 2030 (Figure 3). This would also bring it closer in line with the IMO reduction goal to halve emissions by 2050 compared to 2008 levels.

Figure 3: Emissions trajectory of the shipping sector in selected scenarios[4]. 5% reduction excludes tanker trade.

 

 

Source: Trucost (As of April 2020)

 Business Air Travel

Until very recently, aviation was projected to be one of the fastest growing industries within the transport sector with forecasts showing passenger numbers doubling by 2037[5] and the miles travelled by paying passengers increasing by 82% by 2050. Like shipping, aviation is not directly included in the Paris Agreement but carbon emissions from the sector are expected to increase by a third by 2050 based on these growth projections.

In the short-term, companies in all sectors are likely to feel the pressure to reduce overheads and business travel would be an easy target. Virtual attendance at conferences or meetings is likely to receive broader acceptance after the “biggest work-from-home experiment” triggered by the pandemic and this could have a long-lasting impact on how businesses approach travel policies within their companies.

Our analysis shows that if every company currently engaged in business travel were to reduce air travel miles by 40% it would align the whole aviation sector with a 2°C climate scenario by 2030 (Figure 4).

Figure 4: Emissions trajectory of the aviation sector in selected scenarios[6].

 

Source: Trucost (As of April 2020)

Employee Commuting

The lockdown of cities around the world has had an immediate effect on transport associated with employee commuting. Motor vehicle journeys in the UK reduced by approximately 60% between February and April[7]. In March, petrol sales also declined by 8.2% year-on-year in Washington State, the centre of the coronavirus outbreak on the west coast of USA[8].

However, having spent months working from home, businesses and their staff have will have removed many of the technical and behavioural barriers associated with remote working. If all businesses in the professional services sector, assuming work can be done remotely, implemented a 3-day work-from-home policy, it would align emissions from passenger transport with a 2°C climate scenario for the next 5 years. However, further efficiency gains and more sustainable transport use are needed elsewhere after 2026 to keep emissions reductions in line.

 

Figure 5: Emissions trajectory of the passenger transportation sector in selected scenarios[9].

Source: Trucost (As of April 2020)

The road ahead is uncertain and many sectors will be faced with different challenges as they look to respond to the unintended consequences of the pandemic. The opportunities for businesses to align ‘back to work’ strategies with global climate goals will also clearly have indirect implications for other sectors. However, coupled with the right economic stimulus packages we may be able to lay the building blocks for a sustainable future.

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