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COVID-19: Key lessons for Climate Change

COVID-19: Key lessons for Climate Change

COVID-19 has caused unprecedented disruption, triggering simultaneous global market lockdowns. While the consequences of COVID-19 are ongoing, many are already questioning why so few companies and markets were adequately prepared to address the impacts of a pandemic, a well-documented risk that has appeared throughout history.

Pandemics or spread of infectious diseases have featured prominently in the World Economic Forum’s (WEF) Global Riska Report for the last 10 years. Despite these warnings, the acute impact of COVID-19 has highlighted a clear gap between identifying risks and developing mitigation or response strategies. This has come at enormous health and economic cost. The low point on 23 March saw around $26 trillion wiped off the global stock market valuation. Coupled with record breaking global unemployment levels, drastic declines in consumer spending, and widespread factory shutdowns, it suggests there is a long road to economic recovery.

The lack of existing government and organisational mitigation and response planning highlights the need to ensure we learn from this crisis in order to better manage other systemic risks in the future.

So, what can we learn from COVID-19? There are 3 key lessons:

  1. Human behavioural bias may be limiting our current response planning. A number of studies show that humans generally fail to intuitively understand risk if its probability falls outside of ‘moderate’ (c.15%-40%) chance of it happening. Furthermore, humans have a natural tendency to avoid risks that are too big and too complex, and therefore the low-probability, high-impact risk of a pandemic meant it was overlooked. This has particularly been the case for traditionally non-financial risks, given the economic implications are often indirect and difficult to quantify.  
  2. Any response planning must consider the network effects of risk. The traditional risk models often used in crisis response will typically focus on the probability and impact of individual risks, but in the COVID-19 crisis see that there are much broader indirect environmental and social consequences, which have amplified the impact of the direct pandemic risk. COVID-19 demonstrates that we work and live in a highly connected world, which can be severely compromised by seemingly unrelated issues.
  3. A globally co-ordinated response is key. Managing the impact of COVID-19 has required a globally-coordinated response. We have seen many governments collaborate: sharing essential equipment, coordinating on a vaccine, and implementing international travel restrictions. A coordinated exit plan will be critical to prevent a second wave of COVID-19 infections.
Without exception, climate change could be swapped in for pandemic/COVID-19 in the paragraphs above. Particularly when we consider:
  • Climate risks, including climate action failure, extreme weather and water crises, occupied all the top five risks identified in the WEF’s 2020 Global Risk Report.
  • Climate change is already having major financial impacts which are likely to continue to grow. The Bank of England have suggested that £20 trillion of assets could be wiped out by climate related events if institutions and companies fail to prepare. The aggregated impacts of climate change have been forecast to cost $4 trillion of GDP by 2030, even without further major catastrophic extreme weather events. This has the potential to create crippling, long-lasting impacts and limit our ability to recover.
  • The planning fallacy, a human behavioural bias, is often used to describe the lack of preparation for pandemic response. In the case of climate change, where transitional and longer-term physical impacts are slow to materialise, it is likely that our responsiveness to these risks will be even more limited.
  • Climate risks have significant risk networks, both between climate risks (such as droughts leading to wildfire onset), but also to other significant indirect risks such as macroeconomic impacts which can trigger significant systemic impacts at rapid velocity. 
  • Climate change will require a cohesive approach driving consensus on global activity through ongoing intergovernmental negotiations such as seen at COP25. However, the failure to reach any consensus on Article 6 at COP25 provides a key signal that there is still more to be done in achieving this globally-coordinated approach.

While climate risk continues to grow, we can learn from the impact of COVID-19 about how to develop better crisis prevention and response. This will require organisations and governments to act rapidly to deliver integrated risk, strategy, governance and reporting on climate risk.

Read the next section: How can we use the lessons learnt from COVID-19 to better prepare for climate change?

 

Download our report : COVID-19: key lessons for climate change