Coronavirus and climate change

Coronavirus and climate change

We consider the effects of the COVID-19 pandemic on climate change.

The coronavirus pandemic is an unprecedented global crisis. The human, economic and financial impacts have already been huge, and it is not yet clear how quickly the virus will be brought under control and normal economic activity can resume.

The collapse in global economic activity will result in a short-term dip in global greenhouse gas emissions growth. One estimate put the carbon dioxide reductions resulting from China’s February shutdown at 200 million tons1, around half the UK’s annual emissions. However, this is of course a temporary impact. The more significant point in relation to climate change is the impact of COVID-19 on the practical preparations and political momentum ahead of the critical COP26 climate meeting. The kind of mass climate demonstrations which were so effective last year will not be possible, and governments’ attention will inevitably be distracted.

At a macroeconomic level, the International Energy Agency have also warned that the slowdown is likely to stall many government-funded green projects, as governments urgently divert resources to keeping businesses and individuals afloat. Collapsing energy demand will also have a negative impact on private sector investment; in Europe, for instance, the EU emissions trading scheme price has fallen sharply, decreasing the incentive for renewables investment. Further ahead, there may be potential for ‘green fiscal stimulus’ – government spending on new green infrastructure – but it is too early to say how likely this is.

With COP26 already looking challenging due to the political stance of some major governments such as the US, these further headwinds make it even more important for investors to take action, including calling on companies to align business strategies with the Paris goals, and encouraging governments to set ambitious national emissions targets.

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ESG implications of the COVID-19 pandemic

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The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

Views and opinions have been arrived at by Columbia Threadneedle Management Limited and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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