How Covid-19 could shape the ESG landscape for years to come

From more rigorous integration of social issues into the investment process to the strategic case for sustainable investments.

The coronavirus pandemic has hit the world economy at a critical time from an ESG perspective. Climate talks in Madrid at the end of last year ended in disappointment and all eyes were on the COP26 climate summit in the UK this November to put the Paris climate ambitions back on track. Now COP26 has been delayed until 2021.

The covid-19 outbreak also hit at a time when global energy markets were already in turmoil. The collapse in the oil price triggered by a fight over market share between Saudi Arabia and Russia in February has now been aggravated by a more pronounced collapse in crude oil demand[1]. This has implications for the clean energy, biofuels and recycling plastic technologies.

This year should also witness the EU Action Plan and the European Green Deal beginning to take effect. With governments naturally focused on supporting healthcare systems and preserving human life, policy makers must keep their resolve to maintain and accelerate efforts to address the climate crisis and broader ESG issues.

We have witnessed an extreme spike in asset market volatility with equity market volatility back to levels last seen in the Global Financial Crisis (GFC)[2]. Forecasts for global growth suggest we are likely to see the largest quarterly contraction in economic activity since the 1940s and predictions for global CO2 emissions this year could be that they fall by as much as 5%[3].

While central banks and governments have responded quickly to this crisis in terms of interest rate cuts, new quantitative easing programmes, and fiscal stimulus packages we, like many, worry that when the economic recovery comes, CO2 emissions growth will simply leap higher as they did in 2010.

If this was not enough, we also have another societal issue to be even more concerned about. The major financial winners since the GFC ten years ago have been the super-rich helped by rapid asset price inflation such as in real estate and equities[4]. We cannot afford this to be the outcome of this crisis. We expect addressing inequality will need to become an even greater priority for governments. Companies must play their role and not leave it for taxpayers to foot this bill yet again.

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1. Bloomberg Finance LP (April 1, 2020)

2. CBOE (April 1, 2020)

3. Bloomberg (March 27, 2020). Economists see US facing worst ever quarterly contraction

4. UN Department of Economic and Special Affairs (DESA) (January 2018). World Inequality Report 2018

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