There has been a constant deluge of negative news flow around the coronavirus crisis, what’s been a positive take for you?
At the beginning of all this in January and February, most western/developed countries felt that we were worlds apart from the crisis taking over a small, remote region of China. For many, this combined with our idea of medical science created a blissful state-of-mind that pandemics are ‘things of science fiction’ or Hollywood, and that the science would protect us if it did ever come. It wasn’t until the virus reached closer to home and hit Italy and New York that the mind-set changed. This crisis has really shown how interconnected we all are, both as a global society and as a species. The virus discriminates no one and this crisis has forced lots of humility and respect for our shared human-ness. I like that.
There is a great solidarity story here, too — in recent years there was a growing conflict between generations, value systems and economic priorities. Tensions especially between baby boomers and millennials have been reflected in things like the rise of political populism and decisions around Brexit, for example. It’s been heart-warming that this crisis has forced more intergenerational solidarity and dialogue with younger generations helping to support the elderly through volunteering and community outreach.
And finally, society is shaped often by those who we consider to be our role models – for many over the past decade it’s been reality TV and social media stars. In war time, people look up to soldiers; but during the war against coronavirus it’s been doctors and nurses who have become the dominant role model, and this is hugely positive. Hopefully this will inspire our younger generations to take up a medical profession, which would be great as there is still a lot of work to do, especially with our aging population.
The coronavirus crisis has caused the largest annual fall in global CO2 emissions; will it have a lasting impact?
Pre-crisis, many of us had quite high-carbon lifestyles and it was considered ‘just the way we do things’. We needed to be in the office, we needed to get public transport and we needed to travel abroad. Now all of a sudden, I can see from our own businesses, as well as hear from clients, that things are changing – yes it’s forced, but in many ways we are becoming greener and it’s great to see. After all, a lot of psychology research says it takes about two months to form a habit, so I’m hopeful that some of these forced adjustments will inspire lasting change for many of us, as well as the planet. Whether that’s more working from home, cycling to get around or having more of your meetings online to avoid travel. The crisis has certainly been a wake-up call for many and might just be a clincher for those who still needed convincing that we can change our lifestyles to deal with global warming.
Climate has been a big story during the crisis, but what about other ESG (environmental, social and governance) issues?
When we think about sustainability, many equate it with environmental sustainability and climate change — that’s the goal which rallies most people around the flag. Now clearly the focus has shifted very quickly and accelerated the trend towards social sustainability and thinking about vulnerable parts of society, whether that’s for physical and mental health reasons or economic ones. It has forced us to think more about the role and duty that companies and governments have in supporting society. And the reality is that it may not always be in one’s short-term interest (especially financial) to do ESG-related things, but it absolutely is from a longer-term sustainability perspective.
For the ‘E’ in ESG, we have the language of carbon and metrics like emissions and weather. But for social, we use the language of people which makes it more challenging to describe, differentiate and measure the impact of social actions. Also, the ‘S’ in ESG is typically thought of as philanthropic ‘giving back’ sort of initiative in faraway countries — but most often, social begins close to home. It includes a company’s treatment of its employees, suppliers, clients and local communities. The coronavirus crisis has seen a greater focus on employee welfare. Wellbeing programmes and mental health awareness have experienced exponential growth over the last decade, and hopefully this crisis will spark more progression here too. Such wellbeing needs are what some are calling ‘personal sustainability’.
Looking back to your expectations for 2020, which themes are the same, which are different?
I’ve been expecting to see sustainable investing become more and more of a defensive play — for it to move beyond the realm of PR and clever communications and marketing strategies, more towards regulation and strong pressure from critical stakeholders. And now with the coronavirus crisis, we have seen that strong pressure applied. For 2020, I also predicted that the green bond market would grow, particularly in the US. Instead, we’ve seen the spectrum of the sustainable bond market broaden, thanks to masses of social bonds issued during the crisis to help fund government programmes and policies. It is absolutely my view that green bonds will continue to grow, in fact I believe it will become sizeable and a very broad-church asset class in the coming years, covering all kinds of sectors and rating categories. Accessing the green bond market is the most tangible action that can be taken by a company or indeed an investor to show they are serious about the carbon transition.
An interesting change brought on by the coronavirus crisis has been the massive rise in green and social short-dated debt instruments. We used to always think about funding being long-dated, but in these circumstances, the most sustainable thing for many companies has been to access short-term relief measures such as lending, payment holidays and commercial paper.
Has the coronavirus crisis been the final push investors needed to appreciate ESG investing?
The coronavirus crisis will act as the first litmus test for ESG investing since the 2008 crisis. It’s an ideal market situation to evidence whether or not ESG funds and assets really are sustainable, and if they can withhold major shocks better than their non-ESG counterparts. Markets have been highly volatile and investors who have been running sustainable portfolios, though they’ve been hit, have fared relatively well compared to others. There is more and more research out there that suggests it pays to do ESG, and this crisis will likely further confirm that.