Could the Covid-19 crisis boost sustainable investment?
Could the ongoing impacts of the Covid-19 coronavirus pandemic herald a sea change in how we manage our economy and help drive a more sustainable future? Here, Insight Investment comments on some of the latest steps towards sustainable recovery and investment potential ahead.
The global spread of the Covid-19 coronavirus has had a devastating impact on health, jobs and markets across the globe. While many countries are now successfully reducing the death toll and wider infection rates, the future course of the pandemic and its longer term impacts remain worryingly unclear.
Given what global investors have already gone through and learned from lockdown and the wider economic impacts of the pandemic, some investors and organisations such as the World Economic Forum¹ are asking if it is time for a reset on sustainability, our stewardship of the planet and the way we invest and do business in the future. If so, how might this be achieved and what implications might it have for investors?
At a policy level some positive news stems from how governments, central banks and regulators across the world have taken unprecedented action and coordinated efforts to help stabilise financial markets, support economies and sustain the livelihoods of their citizens throughout the crisis.
Among the many wider responses to the pandemic, global organisations such as the UN have also weighed in. The UN-supported Principles for Responsible Investment (PRI) – a network of global investors working together to implement principles designed to boost global financial sustainability – recently published actions for responsible investors in response to the COVID-19 pandemic. In doing so, it stated that “an immediate, robust response is needed across the global economy.”
This includes a call to engage with companies that are failing in their crisis management and where other harm is being hidden behind, or worsened by, the crisis via due diligence or other means. Deprioritising engagement on other topics while sustaining a focus on ESG factors was also recommended by the PRI.
Call to action
In turn, the PRI call to action urges investors to publicly support an economy-wide response to the Covid-19 pandemic, participating in ‘virtual’ AGMs where appropriate – instead of delaying AGMs indefinitely.
Other PRI recommendations encourage investors to be receptive to requests for financial support from businesses and, crucially, maintain a long-term focus on investment decision-making with close attention to potential risk, including any risks that may stem from ESG factors.
Insight Investment is among a number of investment companies to welcome the UN PRI’s latest input. Commenting it says: “We believe we all share a responsibility to support a sustainable economy and play a positive role in society. We also believe that this will support investors in achieving their long-term outcomes.”
In a post Covid-19 world, the UN’s 17 sustainable development goals for 2030 also look set to play a pivotal role in helping to improve the healthcare and economic well-being of millions of people across the globe. Yet while the Covid-19 pandemic and our future ecology present truly global challenges, responses are likely to vary widely across regions.
Progress is being made. From a wider policy perspective, recent months have seen particularly encouraging news from Europe, with the European Commission putting down a major new marker for sustainability with the launch of plans to create a €750bn EU recovery package with a ‘European Green Deal’ at its heart².
Central to the proposals is a stimulus package focused on renovation, clean mobility, hydrogen and renewable energy – with proposals aimed at helping create over a million new ‘green’ jobs. Set against recent news that the European Central Bank is to buy €600 billion in bonds³, this should provide a major fillip both to economic recovery and sustainable investment in the region, while also creating potential new opportunities for investors
Insight senior ESG analyst Joshua Kendall believes the pandemic and the following health crisis could ultimately help foster growth in investment areas such as the impact bond universe and that, while economic recovery from the crisis will cost billions, investors in the market may still focus on sustainability.
“The transition to a new green economy is expensive for countries. I see Europe as a driver of change. But public money is not the only driver, companies are also investing in technology to reduce emissions. Sure, there are costs involved, but when you see where the money is coming from, I see clear support from major investors in the shift to a greener economy,” he says.
More widely, evidence suggests the global impacts of Covid-19 are already helping to spur issuance of new social and sustainable bonds across geographic regions. According to research from HSBC, social and sustainability issuance was up 69% in the first quarter of this year compared to the first three months of 2019, to US$6.7bn, driven partly by issuers seeking to provide emergency funding in response to the pandemic⁴.
This new issuance included a US$3bn social bond from the African Development Bank to provide financing to countries and businesses, and to support African communities, seeking to overcome the virus and its implications. A range of other bonds seeking to finance pandemic responses was also issued.⁵
²The Guardian. EU pledges coronavirus recovery plans will not harm climate goals. 28 May 2020.
³FT. ECB boosts bond-buying stimulus package by €600bn. 4 June 2020.
⁴HSBC Global Research. Green Bond Insights: Delayed but not denied, 15 April 2020