The arrival of the COVID-19 pandemic has had far reaching consequences on all of us. In much the same way that the ’08 crisis changed the way in which the financial services markets operated, we predict that COVID-19 will force every investor to take ESG seriously. In even these early days of the pandemic – with nations such as the USA and UK yet to feel the full brunt of the virus – ESG funds have fallen by half the decrease of non-ESG funds on the S&P 500. More than anything, this pandemic underlies the vulnerability & fragility of a fully globalised word and raises the question – how can businesses adapt for a post COVID-19 world?
ESG is a subset of sustainable investing, covering a company’s environmental, social, and governance performance. It is the governance and social indicators that draws a watchful eye from investors during this crisis, as Moody’s has recently highlighted.
Companies with a strong corporate governance culture, which includes disaster preparedness, business continuity planning, and employee treatment, will undeniably weather the current storm better than those that perform weakly in this area. Andrew Howard, head of sustainable research at Shroders, argues that company’s success “reflects their ability to adapt to challenges and trends in the societies to which they belong. That is more true now than ever; social and environmental challenges, and investment drivers, are increasingly overlapping.” Investors want assurance that they will not be exposed to unnecessary volatility or risk – and having a positive ESG rating reassures this desire.
COVID-19 has exposed the need for an efficient HSE management system. Sectors that previously had been regarded as low risk, such as retail or office environments, have been exposed to an unprecedented degree of workplace risk due to the pandemic. Companies with advanced HSE infrastructure have been better prepared to efficiently implement COVID-19 risk measures. Sustainalytics examine these characteristics in their Health & Safety Management System indicator, stating ‘We expect management teams to significantly boost health and safety management budgets as a direct result of coronavirus, and investors to increasingly target health and safety preparedness in their engagements’.
COVID-19 has provided yet another stimulus for businesses to take ESG seriously. Investors will be targeting ESG performance as an indicator that they will be insulated from volatility in the event of another crisis. For ESG to be a beneficial metric, an effective reporting and communication platform such as Emex is a must, making data useable for management teams and investors alike.