Covid-19 and Responsible Investment - a pause or a portal?

May 21 2020 - Raechel Kelly, Communications Manager

For many here in the UK and around the world it's been a strange few months, and for some it has been a truly awful time of stress, ill health, grief and financial struggle. The impacts of this pandemic are seen everywhere, and in the eye of the storm it becomes difficult to tell which impacts will be permanent and which will be temporary. Nonetheless, it's useful to perhaps look at some of the news that's emerging from our local community and more broadly across our industry and start to ruminate on just what some of the long-term impacts are likely to be.

The first and most noticeable impact locally was the establishment of mutual aid groups, either with street WhatsApp, Facebook groups, the local authority Covid-19 volunteer requests being met or just neighbours checking in on the elderly and vulnerable. One of our team has been delivering prescriptions locally, and we're proud to support Ethical Giving in their swift local funding response which has seen cash go immediately to local groups helping the most vulnerable. It has been immensely heartening to see the response from our team and community here in our corner of Gloucestershire. 

There has also been a huge increase in the number of people walking and cycling, with the streets devoid of cars, many seemed to grab the opportunity for safe exercise in and around Cheltenham. Air pollution levels have dropped across the UK, meaning many in towns and cities are breathing fresh air, untainted by the usual diesel/petrol fumes that accompany walking and cycling on busy roads. The link between air pollution and Covid-19 deaths is still under scrutiny, however it is clear that high levels of air pollution were already causing respiratory disease and death on a massive scale, even before the addition of a novel virus. The World Health Organisation estimates 4.2 million deaths annually worldwide linked to dangerous air pollution levels. Whether those who took to the streets while they were safe continue to use them remains to be seen, many councils are implementing emergency pop-up bike lanes and pavement widening to allow continued social distancing and try to prevent people from returning to work in individual private cars while the public transport networks remain a 'last resort'. Bike sales have increased with many transport experts also lauding the e-bike revolution as a potential gamechanger in the push for a modal shift in the ways we travel. Some are also touting the potential of a home-working revolution as businesses acknowledge the benefits of not operating office spaces full time. Even if pollution levels return, as they are expected to, what will linger in people's memories will be the experience of clean air and safe active travel - perhaps making them more likely to demand policy changes at local and national levels.

Global CO2 emissions have also fallen while factories remain empty and power stations are powered down due to lower electricity demand. Emissions decreased by a maximum of 17 per cent - or 17 million tonnes of carbon dioxide a day - globally during the peak of the confinement measures in early April compared to average daily levels in 2019 according to the study from UEA, published in the journal Nature. The study concluded that the lockdown impact on emissions could result in a 7% drop in 2020 annual emissions levels, roughly what would be needed year on year globally to achieve the 1.5oc goal of the Paris Agreement. This lays bare the extreme changes needed to prevent catastrophic climate disaster, which would make the disruption caused in the last few months look small in comparison. The Covid-19 crisis has also shown the threat-multiplier effect of climate chaos, as shown by natural disasters such as flooding in Eastern Africa or the cyclone in the Bay of Bengal, disaster responses are slowed and exacerbated by the comorbid impacts of health and environmental crises. Perhaps citizens, politicians and companies will be more receptive to the pleas of scientists in the wake of the pandemic, or possible more knowledgeable about exponential growth, risk and probability. Virologists and epidemiologists are encountering the same barriers the climate scientists have been hampered by, including political inaction and deadly delay, or even worse, bad faith actors actively working to discredit or blame. Countries and businesses which have genuinely acted 'on the science' will recover more quickly and be better prepared for future threats, something for climate-focused investors to look closely at. 

Companies have also become the focus for shame and praise from consumers and the press from the outset of the crisis, many were made the villains or the goodies of the drama. Investors are often to be found complaining about the lack of objective 'S' data in ESG, the coronavirus revealed a huge amount of 'S' intelligence, or rather lack of! Companies which immediately fired staff before the announcement of furlough packages, or those that paid dividends before paying staff. Some forced employees to continue working even though it was unsafe to do so, Smithfield Foods in the US was at the centre of a particularly bad outbreak and is now being sued by worker's groups. Many companies were also criticised for their aggressive tax strategies, or offshore tax haven use, yet were first in line when it came to bail-out money from Governments. Some countries, including France, Poland, Belgium and Denmark have refused to provide bail-out cash to any companies linked to the use of tax havens. The implications for investors in these companies is huge, as the impact of ongoing lawsuits or barriers to cash handouts to return to productivity start to bite. The reputational damage amongst consumers is also often an indelible one, with corresponding impacts on the bottom line. In contrast, companies like Unilever have been distributing hand soap for free, others have worked swiftly to support the sudden wave of home-working, and pharmaceutical companies have worked flat out to support state run testing programmes and vaccine research. The positive social and environmental contributions during the pandemic will surely be covered in many annual reports next year and as researchers we would love to see these mapped against the UN sustainable development goals accurately.

It is perhaps unsurprising then, given the examples above, that ESG and responsible investment has been somewhat cushioned from the blows of the market in recent months. Largely due to the avoidance of fossil fuel exposure, many funds have outperformed, and as in 2008, it seems investing with purpose in companies which are well-run and future-focused does offer some protection in difficult times. We won't go into the details as investment advice isn't our thing, but here is a selection of articles that highlight the trends:

What is perhaps most important for those of us in the sustainable investment industry is that this is the first financial and global crisis where ESG and the principles of responsible investment have been embedded into many firm's investment strategies. Hopefully the outperformance will be the final nail in the coffin of the 'sacrificing profit' fallacy, however the deep recession which is coming may cause enough pressure to test the values and principles and policies which have been put in place. All of us in the industry have a role in ensuring that responsibility in investment is hardwired into the recovery. We do not have the luxury of time to deal with the multiple other crises of climate or inequality, for the recovery to be anything else but just, fair and green from the outset.

Governments, businesses, charities, communities and individuals must seize the opportunity to build back better. There may not be another chance to do so. In the beautiful words of Arundhati Roy:

“Whatever it is, coronavirus has made the mighty kneel and brought the world to a halt like nothing else could. Our minds are still racing back and forth, longing for a return to ‘normality,’ trying to stitch our future to our past and refusing to acknowledge the rupture. But the rupture exists. And in the midst of this terrible despair, it offers us a chance to rethink the doomsday machine we have built for ourselves. Nothing could be worse than a return to normality. Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it." 

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