I can see blue sky and sunshine from where I sit, no clouds or aircraft vapour trails. Only occasionally do I hear a car on the road, it is beautifully quiet, and the birds sing without having to compete with the noise of everyday life. COVID-19 has brought the world to a standstill, well almost. A major pandemic has long been predicted, but when, where and how it would strike was impossible to say. It seemed to be the stuff of TV serials, not real life. People I’ve spoken to have commented that today it is what life must have been in the 1930s and 40s; shopping locally, no cars and much more community spirit. It seems we look back to a time when our communities and societies were strong, which largely got washed away in the drive for globalisation and individualism. COVID-19 has taken a terrible toll and will leave a very deep and lasting impact on us, but I am optimistic it will also lead to many positives. Perhaps we are getting a glimpse of the shape of things to come as the world moves towards a sustainable economic future.
There have been numerous media reports about the drop in pollution – satellite images from around the world show air quality is much improved. In Bristol pollution levels have fallen by 40% (source: National Centre for Atmospheric Science) and the air is noticeably cleaner most of which is down to a reduction in traffic. This plays into a major theme running through Environmental, Social and Governance (ESG*) criteria for investing – the decarbonisation of the economy.
A visible aspect of this is the electrical vehicle replacing combustion engines. The drive to electric vehicles is very much underway, but this period of lockdown could well add extra impetus to this move. Power generation is another area where change is progressing well. In 2019, 75% of new power capacity built worldwide was renewable (source: International Energy Agency) and with the UK experiencing nice weather recently, some households on renewable tariffs are being paid for the power they generate. Whatever the economy does, the sun still shines and the wind still blows.
*What is ESG?
Environmental, Social, and Corporate Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (risk and return) and allow investors to make a choice based on this assessment of a company.
This looks at the impact a company has on the environment and what actions it is taking to reduce things like:
- waste and pollution
- resource depletion
- greenhouse gas emissions
- climate change
This looks at the relationship that companies have with other businesses, how they treat their staff and its engagement with communities. Considerations are:
- employee relations & diversity
- working conditions
- funding within local communities
- health and safety
- conflicts of interest
Corporate Governance Concerns
- This is concerned with the internal company affairs and its relationships with employees and the shareholders. It covers:
- executive remuneration
- donations and political lobbying
- corruption and bribery
- board diversity and structure
Source/further information: Market Business news
Looking to the Future
The damage to the global economy will be extensive and people will need and want to get back to work as quickly as they can. Many will have been made unemployed and not helped by the gig economy in which worker rights are few. Most government support packages are designed to help businesses through this. Just how well will they work we simply don’t know at this stage. The economy I think has the propensity to bounce back strongly but it is also an outstanding opportunity to use financial support packages and central bank to help push for more sustainable business models and to invest in environmental sectors.
In time, as we emerge from lockdown as COVID-19 recedes, I am hopeful that ESG will become more centre stage for investors – a key aspect of it is “social”; how companies interact with society and treat their employees, including those in the supply chain wherever they are in the world, and this is very much under the spotlight. One thing COVID-19 has done is bring people together – life has been put ahead of the economy. If these sentiments continue, we may be witnessing a fundamental change in what society values most.
- The world moves towards a sustainable economic future - September 14, 2020