COVID-19: A game changer for climate risk?

Even now, fully half a year into this pandemic, asking people to think about non-COVID-related business risks can feel a bit, “How was the play, Mrs. Lincoln?” But as time marches on, and the virus seeps further into the background radiation of our lives, clients are inevitably going to start thinking again about the totality of external risks relevant to their organisations. And that means that professional services firms would be well served by considering the long-term implications that the events of the last six months will have for the way that their customers think about risk.

Out of all the various categories of risk, perhaps none had been rising up the average client’s agenda quite as quickly—prior to the pandemic—as climate risk. Spurred on by pressure from investors, regulators, and their own employees, businesses around the world had started to think about their exposure to climate risk in much more concrete terms. Additionally, more stakeholders were recognising the need to not only consider the physical risks of climate change—how their operations could be affected by extreme weather events, for example—but to also factor so-called “transition risks”—the financial costs of decarbonisation, the potential for stranded assets, and so on—into their thinking as well.

There is no doubt that COVID-19 has had the effect of temporarily hamstringing clients’ ability to mitigate their exposure to climate risk. Climate change is an issue that will play itself out over multiple decades, and any concern of that nature is going to feel less immediately relevant than questions about how to protect employee well-being in the midst of a public health crisis, or how to ensure the survival of your business in a global economic downturn. In researching our new report, Sustainable Futures: A Climate Transformed, we found that 51% of US-based clients reported that their organisations had been forced by the pandemic to cut back their spending on climate-driven initiatives—compared to only 13% whose organisations were now putting more money into realising their climate agendas.

But despite this short-term reprioritisation, there is a real possibility that, in the long run, the pandemic is going to increase the salience of climate risk in the minds of clients. Previously, even among many of those who paid lip service to the threat posed by climate change, there was a pervasive assumption that humanity, as a species, was resilient enough to shrug off whatever disasters might befall it—particularly if we had enough advance warning.

After all, we’d been here before. Most of today’s private and public sector leaders are old enough to remember the ozone depletion crisis that dominated headlines in the ’80s and ’90s. That crisis was ultimately averted through scientific progress and international cooperation with negligible impact on the global economy; up until this year, there was a widespread but unspoken assumption that the climate crisis would end up playing out in much the same way.

That assumption has been wholly and irreversibly shattered by COVID-19. We’ve all seen with our own eyes just how quickly the global economy can be brought to its knees by events outside of human control—even events that scientists and advocacy groups have been warning us about for decades. Moreover, large businesses with globe-spanning supply chains have seen how the complexity of those supply chains magnifies and compounds their exposure to risk, as disruption in one country can render them incapable of meeting customer demand on the other side of the world.

More and more, we are hearing anecdotes of stakeholders explicitly talking about this pandemic as a “dry run” for the challenges of climate change. Right now, many businesses are still having to focus all of their energy on short-term firefighting, but once that is no longer the case, professional services firms should assume that their customers will be more open to the idea of putting serious resources behind the challenge of mitigating their exposure to climate risk. Service providers should start thinking now about how to help their clients capitalise on that new-found sense of urgency—and how to tease out tangible lessons from the experience of the pandemic that their clients can use in responding to the pressures of climate change.