Will Covid-19 crowd out the climate and social agenda?

Taimur Baig, Ph.D, Chief Economist and Mikkel Larsen, Chief Sustainabillity Officer, DBS Bank Ltd

Over the course of the past three epoch-defining months, humanity has come together to take unprecedented support measures to deal with the Covid19 outbreak. So far, the announced fiscal and monetary measures from governments around the world, to support the livelihood of individuals and survival of companies and industries, amount to USD7 trillion, around 7% of global GDP. The cost of dealing with this crisis will manifest in large increases in fiscal deficits and debt in virtually everywhere, and even then, it will be years before we make up for the jobs and output being lost presently.

When the pandemic ends, will we be so exhausted from the ordeal that we will lose interest in other matters of importance? Will we be so impoverished that our generosity to set aside resources toward important causes will dissipate, and governments will be loath to spend in priority areas?

In recent years, there has been a sizeable shift toward taking actions to fight climate change, reduce poverty, improve livelihood (health, education, quality of work), and the social imperative of companies (including stakeholder accountability). While much more remains to be done, we have seen increased resources devoted to dealing with these issues, and there has been a discernible shift in public perception toward living in a society that is more just, and a world that is more sustainable.

It is easy to worry that post-pandemic priorities will shift to issues closer to the pocketbook, like restoring jobs and boosting asset markets. But this cynicism is misplaced, in our view.

Transition towards more resilient assets

Social media is rife with photos of bright blue skies in cities previously overcast with pollution, and dark canals and rivers turning clear and transparent, while affliction from breathing high particulate air is falling dramatically. Nature’s ability to heal and rebound has seldom been so starkly demonstrated. As the terrible pandemic ends, will we simply go back to business as usual, or will we reach out to policy measures and technological solutions that allow us to hold on to what has been regained in recent months? We think the latter.

Beyond responding to the romanticism of blue skies and fresh air, policy makers have a harder truth to deal with in the post-pandemic world. To propel their economies forward, national authorities will have to take into account long-lasting downshift in the demand for travel, tourism, dining out, sports events, and concerts, along with accompanying decrease in trade of goods and services. The imperative to find a major engine of growth to offset a looming depression is considerable.

Weak structural and cyclical demand has already caused commodity prices to collapse, with the fossil fuel industry in great distress. Even if prices and demand were to recover somewhat, the stark reality is that fossil fuel related investments and jobs are in the old economy category, much of which are in the process of being permanently lost. While weak demand for energy will cause distress in the renewables industry as well, the firms in that sector are smaller and nimbler, with lower fixed cost and little by way of potentially stranded assets. Just like the dotcom bust did not mark the end of the agile tech sector, the across-the-board distress in the energy sector won’t mark the end of renewables.

Gaps in our social safety nets

With key engines of growth sputtering, what better way to galvanise public’s sentiments and direct a big chunk of the declared support measures to climate change and better societal outcomes? A win-win solution would be to divert investments and job creation efforts in the renewable energy industry, green infrastructure, low or zero emission transportation, education, and health. This ought to be coupled with policy measures to reduce income distortions and disparity, and increase wealth transfers toward a more humane and equitable society. In short, ensuring a “just transition.”

Dealing with a crisis like this underscores the need for well targeted social safety nets, comprehensive public health provisions, and national stockpiles of products to deal with extreme events. It also reminds us that there are many shocks in which we are all in together. Acute inequality makes the society inherently unstable as the frustration and despair of the deprived make for a demotivated and socially volatile population. Similarly, a country with a weak public health system or a world with inadequate response to rising sea levels will remain fragile.

How much are developing countries spending on dealing with tuberculosis, HIV/AIDS, and malaria? Estimates suggest marked increases in the past decade, but still falling far short of what is needed. Among the countries with the most pressing needs, there is still over-reliance on donor funding. The Covid-19 crisis ought to galvanize support for more own-source financing for such public health needs. Chastened by the pandemic, the public and policy makers will surely become more serious about Sustainable Development Goal (SDG) 3, which aims to “ensure healthy lives and promote well-being for all ages.”

But equally, there needs to be an appreciation that for developed countries to avoid future pandemics arising from developing countries, there is ought to an enlightened self-interest in reducing poverty and promoting equality around the world.

Public and private sectors’ responsibilities

All solutions and efforts cannot and must not come from the public sector. Private sector entities that are not part of the present problems must become part of the solution. From taking seriously the footprint of their activity on stakeholders and the climate to operating with good governance and sound working conditions for their employees, companies have to reinforce their purpose.

This crisis has revealed many misplaced priorities. Trillions go toward building and maintaining weapons of mass destruction, but billions are cut from public health provisions. Businesses worry about the flow of credit and the risk of default, but don’t fully recognise the impact climate change will have on their operations and product demand. We worry about upgrading to newer cars and phones, but ignore basic practices of hygiene and sustainability. Behind such behaviour runs the undercurrent that third world health, climate change, and rare pandemics are too big and too macro, and they must be someone else’s problem. Social scientists agonise over ways to bring public attention to these critically important but regularly neglected matters. The enabling window for action is however opening as we live, learn, and empathise through this global cataclysm.