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Article19 Aug 2020

Could Changing Corporate Behavior Lead to a Greener Future?

Could It Lead to a Greener Future Post COVID-19?
COVID-19 has dragged down the global economy dramatically and while it may bring changes that benefit the environment, this should be assessed relative to overall economic performance. Historically, carbon emissions have risen and fallen with economic activity. Beyond the cyclical implication of COVID-19, the pandemic is likely to have a structural effect, including intensified de-globalization. Less international trade may help the climate, but many advantages of globalization are lost and strategies that benefit both the economy and the environment do exist.

Globalization has been challenged during the past decade and COVID-19 creates additional threats reflecting that the pandemic has intensified the need for supply chain optimization. Importantly, de-globalization affects productivity negatively and further COVID-19 costs necessitate new investments. But from a cyclical perspective, businesses are skeptical regarding economic prospects with impacts their investment appetite. Less international trade will damage global growth very substantially and while it may have a positive impact on the environment, it is relatively small compared with the economic cost. The cross-country impact on growth depends on trade-dependency, as does the impact across sectors. Corporates are expected to permanently substitute some business travel with virtual meetings. The closure of many national borders, as well as the individual infection fear, forced corporates to rethink the approach to people interactions. The efficiency of virtual meetings implies corporate travel is unlikely to fully return to pre-COVID-19 levels. The reduced cost is likely to support technological investment, which enhances productivity. However, new investment may be postponed and a permanent reduction in corporate travel is a drag on the economy. But it benefits the environment, although not being a game-changer with business travel accounting for a much smaller share of travel spending than travelling for leisure. Research on the historical effects of pandemics on economic growth finds very persistent negative effects lasting for several years. We see the intensified de-globalization trend as the biggest structural risk to the global economic outlook, especially as less international trade reduces productivity growth. However, even under an optimistic V-shaped recovery, the economic loss during the COVID-19 crisis will not be recovered.

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