Why the Covid-19 recovery and climate crisis need a unified response

The EU’s proposed Green Deal shows that the right policy initiatives could address the economic crisis and climate change simultaneously. By Isabella Hervey-Bathurst

Like Comment


Last year saw an acceleration of momentum in commitments to address climate change at a supranational, state, corporate and civil society level.

The European Union (EU) announced its intention to put a ‘Green Deal’ in place to transition the bloc to be a net-zero carbon economy by 2050. Growing numbers of countries and companies made equally ambitious pledges to cut emissions. Popular climate change protests gathered momentum and teenage activist Greta Thunberg was named TIME magazine’s Person of the Year.

So, as we started 2020, sustainability and climate change were riding high on the political and corporate agenda. Understandably, this all came to a grinding halt with the spread of Covid-19 and the subsequent health and economic crisis that it posed.

As the importance of the climate challenge waned in the face of greater immediate challenges, it seemed the momentum of 2019 might disappear. In some practical ways, it has: COP26, the UN’s flagship climate talks, have been postponed, and renewable energy supply chains have come under pressure due to logistical bottlenecks.

Bloomberg New Energy Finance calculated that governments globally have pledged more than $500 billion in ‘brown’ stimulus for carbon-intensive industries such as aviation and oil and gas. Brown stimulus refers to support provided to these industries that is not conditional on them making material improvements, for example such as investing in clean fuel development.

But at the end of May we saw a clear reiteration of the centrality of addressing climate change, and the recognition that this can go hand-in-hand with the need to reboot job creation and economic growth as the lockdowns ease. The EU unveiled a major €750 billion recovery plan, called ‘Next Generation EU’ which aims to repair the economic damage caused by the crisis and prepare the bloc for the energy transition.

Green measures proposed include unleashing a ‘Renovation Wave’ to at least double renovation rates across Europe. Buildings are 40% of EU energy consumption and account for 36% of greenhouse gas emissions, so improving the energy performance of buildings is critical for the EU to achieve its net zero target. Investment will also accelerate the scale-up of energy storage, green hydrogen and carbon capture and storage.

In addition to the EU’s existing fleet emission targets for the auto industry, the plan proposes the rollout of one million electric vehicle (EV) charging points to boost EV adoption. The proposed measures also aim to boost offshore wind and better integrate the energy system.

In a related document, the EU has also proposed a ‘Renaissance of Rail investment’. The carbon intensity of rail transport is far lower than flights or internal combustion engine passenger vehicles, so it is an important part of decarbonising mobility. 

We don’t have the full details yet, and the proposal still needs to be approved by member states before the funds can start to flow. However, as climate change investors we are excited about the growth opportunities this could bring. Particularly across offshore wind, the electricity grid, the EV supply chain, rail, energy efficient building materials, energy efficient heating equipment, and the hydrogen value chain.

Proposed funding sources will also nudge companies to reduce their carbon intensity. The sources include the Emissions Trading Scheme (ETS), a potential Carbon Border Adjustment Mechanism, and a plastics tax. Later in the year we also expect to see the EU’s current 2030 emission reduction targets boosted from 40% to between 50% and 55%, which would require a tightening of the carbon market.

The economic crisis caused by Covid-19 does not mean the collapse of the effort to address climate change. What the EU’s plan shows is that the right policy measures can tackle both challenges simultaneously. 


Important information

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change.

This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority.

DFM Directory
Outsourcing Partners

Money Marketing’s DFM & Outsourced Fund Solution Centre

Browse our directory of Discretionary Fund Managers, to manage your client portfolios, and Fund Providers, to search for a suitable one-stop shop fund solution.


Outsource to Schroders and bring together your strengths and ours. We’ve designed our outsourced solutions to help you meet the needs of a wide variety of clients. We offer a range of Multi-Asset and Multi-Manager funds. Or there’s our Model Portfolio Service and Discretionary Fund Management from Cazenove Capital. However you choose to outsource to Schroders, we can help you to deliver a consistent and streamlined investment experience to the individuals, couples and families who rely on you for expert financial guidance.

No comments yet.