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The COVID-19 pandemic may accelerate the climate change transition

The pandemic has shrunken economic activity and with it, the impact of pollution, but it also demonstrates the scale of change needed to mitigate the detrimental effects of climate change. UK consumers are increasingly aware of their role in driving change and are keen to live sustainably despite economic concerns. Transport, hospitality and leisure businesses can benefit if they focus on addressing the shift in consumer needs as a result of sustainability, in terms of trust, loyalty, and spend.
 

Consumers are increasingly aware of their individual contribution to climate change

People have become more attentive about what and how they consume, making social and environmental issues critical to the Transport, Hospitality and Leisure Industry. 34% of UK respondents stated that environmental sustainability affects their decisions around travel, moving up from 30% in the previous year, in a recent YouGov poll.1 COVID-19 has made the situation more nuanced, with consumers weighing up safety issues against sustainability goals. For example, choosing to travel by private vehicles or cycles and avoid public transport. Some of the behavioural shifts driven by the pandemic that lowered emissions are likely to remain, for instance increased home working, video conferencing and reduced business travel.

Concerned consumers are adopting different measures to live and travel more sustainably. Data suggests that one in five of UK consumers are opting for low-carbon transport, reducing meat consumption, or cutting back on the number of flights they take. A third of UK respondents value ethical practises in the products and services they buy.2

Ethical practises are becoming a key decision factor for many consumers. More than a third of UK consumers said they are likely to buy locally sourced items and will purchase from brands that have responded well to the pandemic. 14% of those who purchase online intend to collect it in-store because it is better for the environment.3

People of all ages are adopting more sustainable consumer behaviours. Younger generations, in particular, take the issue of social purpose seriously and the pandemic appears to have reinforced this commitment. When asked to choose their top three concerns both before and during the pandemic, climate change emerged as a critical issue for both Millennials and Gen Z age groups. 80% of the survey respondents think government and business needs to make greater efforts to protect the environment, yet nearly two-thirds worry that it will be less of a priority because of the economic impact of the pandemic.4

The aviation industry, in particular, is likely to see an impact on demand, with UK consumers planning to reduce air travel in order to reduce their carbon footprint. Older Millennials, Gen X and Baby Boomers, spanning from 31 to 74 years of age, are all similarly engaged with sustainability issues with almost one in five looking to reduce air travel. Whether for environmental reasons or not, at 26%, Pre-Boomers are most likely to reduce their air travel. With the exception of the Pre-Boomers, one-fifth of all other groups will opt for low carbon emission and shared modes of transport.5

Socially conscious tourists are likely to make sustainability based choices across transport, lodging and food. They may avoid destinations suffering from the adverse impacts of climate change or change the timing of travel to avoid unfavourable climate conditions, reshaping demand patterns and the tourism industry as a whole. They may expect more vegan and vegetarian food offerings to reduce meat and animal product consumption. Similarly, an increased intention to use public transport such as the railway and shared or electric cars may drive the need for multimodal connectivity.

In such a scenario, the companies winning customer loyalty will be those that have a clear purpose backed by real action. Businesses will need to reconsider customer acquisition and retention strategies as well as demand forecasting to address these changing traveller habits. The pressure to be sustainable comes not only from consumers, talent and retailers, but also from institutional investors and the government.
 

The government and businesses are taking action to accelerate the climate transition

The COVID-19 pandemic demonstrates the urgency of preparing for external shocks and is likely to sharpen the urgency of efforts to reduce climate change. Understanding of climate risk has grown over time and renewables are increasingly commercially viable. Governments are considering making sustainability an element in exchange for government bailouts. Investors too are playing a big part, some have made announcements that their portfolio companies are expected to address sustainability as part of the pandemic response. Others are making efforts to engage with policymakers and measuring the carbon footprint of their investment portfolios. Some investors are focusing on opportunities to finance the transition to a lower carbon economy, including investments in renewable energies, new technologies and energy efficiency.

The European Commission’s proposed recovery plan is supporting the economic recovery in all Member States by injecting almost €2.2 billion into 140 key transport projects to deliver on its climate objectives set out in the European Green Deal.6 With a strong emphasis on better multimodal connections on the road, inland waterways and rail networks as well as the shift to greener fuels for transport. In the maritime sector, priority is given to projects based on alternative fuels and the installation of onshore power supply for ports to cut emissions from docked ships.

While businesses are starting to take action, the current level of action often does not match the scale and urgency required. A recent survey found that 91% of executives surveyed said that their businesses have felt the impact of climate change but gaps in progress and action remain. Two-thirds of executives surveyed said they anticipate their organisations making cutbacks in their environmental efforts in the event of an economic downturn. 38% say lack of buy-in from senior leaders is preventing their companies from taking more concrete actions to address climate change. 19% stated that reducing the amount of air travel and discouraging use of private jets are some actions that their organisation has undertaken so far. The survey also reveals that businesses are yet to translate concern into significant, long-term action.7

While it is still too early to know what the long-term effects of the COVID-19 pandemic will be, this period could represent a crucial time in the future environmental sustainability efforts.

Travel and transport sector begins to address the climate change battle

As a sector, transport and tourism touches on almost every part of our economy and society, but it is also responsible for a significant share of global emissions. In 2016 transport-related emissions from tourism contributed to 5% of all man-made emissions and are to increase to 5.3% by 2030. The projected increase represents 25% growth of transport related CO2 attributable to tourism from 2016 to 2030.8

As public awareness increases and government policies include sustainability factors as key criteria, the sector will be expected to make serious commitments towards sustainable measures. Most travel and shipping sector organisations have committed to targets to reduce emissions by half within the next three decades and will promote sustainable practises such as fuel efficiency, certification and eco-labelling programs. By 2050, the aviation industry has pledged to cut emissions by 50% compared with 2005 and plan to announce a government-backed, long-term environmental goal for aviation in 2022.9 The International Maritime Organization’s (IMO) greenhouse gas agreement requires the shipping sector to reduce its emissions by at least 50% by 2050, while pursuing efforts towards phasing them out.10

Even tourist destinations such as Cinque Terre, Zion National Park and Machu Picchu are taking steps by limiting the annual number of visitors. Amsterdam, Barcelona and the Seychelles are curtailing large-scale development. Bhutan and Venice charge visitor taxes and fees, while places like Koh Tachai in the Similan National Park are prohibiting visitation altogether.

Transport and logistics businesses are rethinking processes, including the planning and implementation of moving goods, warehousing and supplying services to reduce environmental impact. For instance, some businesses are shifting to one central distribution centre, which would be cost-effective and has less environmental impact than a dispersed distribution system. Others are focusing on local suppliers and shifting freight by rail or water, instead of by road to reduce fuel consumption.

For the sector, sustainability challenges are mounting with the impact of COVID-19. In addition to people intending to fly less due to environmental reasons, it is now unclear whether people will want or be able to return to flying in large numbers in the future. The pandemic could cause societies to reassess long-distance travel. Business travel now feels relatively non-essential, while cargo and shipping has raised concerns of carrying the virus into safe zones. The sector will also come under pressure to align with the Paris Agreement as part of the recovery package. In France, for instance, government support for Air France will be conditional on rapid efficiency improvements, scaling up of biofuels and non-competition with long-distance rail.
 

The pace of the climate transition is increasing, but may be undermined by economic pressure

UK consumers are increasingly aware of their role in driving change and have begun to practice sustainability-led behaviour in their daily life, despite economic concerns. For environmental efforts to have a lasting impact, they need to become an integral part of an organisation’s growth strategy. While companies are able to fit sustainability initiatives within their short-term priorities, they will need to view these as inherent, long-term plans. Organisations may risk losing customers if they fail to understand how consumer preferences have shifted as a result of sustainability. In addition to COVID-19, other challenges include risks to financial performance from volatile energy prices, compliance risks triggered by new carbon regulations, and risks from substitution as customers switch to more sustainable alternatives. There is a need to encourage all transport, hospitality and leisure sectors, to view sustainability as an opportunity to create value, collaborate and work together to reduce risk of inaction and achieve sustainable development goals alongside its COVID-19 response.

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Endnote:
1 How environmental sustainability affects decisions, Yougov Poll, accessed August 2020.
2 Shifting sands: How consumer behaviour is embracing sustainability report, Deloitte, released May 2020.
3 Global Sentiment Survey 2020, Deloitte, accessed August 2020.
4 Global Millennial Survey 2020, Deloitte, released June 2020.
5 Shifting sands: How consumer behaviour is embracing sustainability report, Deloitte, released May 2020
6 Boosting the EU's Green Recovery, European Commission, accessed August 2020.
7 Climate check: Business’ views on environmental sustainability report, Deloitte, released April 2020.
8 Transport-related CO2 Emissions of the Tourism Sector Report, UNWTO, released December 2019.
9 Dossier: Set for sustainability, IATA, released March 2020.
10 Greenhouse emission strategy press release, International Maritime Organization, accessed August 2020.

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