August 4, 2020
Whether it be companies working with bad actors across supply chains, poor crisis and contingency preparedness, workforce layoffs, or even brand reputation management, the Covid-19 coronavirus pandemic has indeed dragged the tide out, exposing businesses and sectors where the ESG emperor is wearing no clothes. The good news: as the global economy starts to emerge from this worldwide crisis, opportunities will abound for companies across all sectors to recommit to rigorous environmental and social programs and sustainable practices.
What we are witnessing is no mere economic recession. At its heart, the pandemic is a societal and health emergency that will leave deep scars that linger for a generation or more. During the current crisis, investors, as well as our broader society, need to be vigilant against the potential outcome that would see existing, entrenched interests reinforced, rather than reversed, which would run counter to the hopes of society. We are currently seeing the best of many individuals and companies in the battle against the disease, but with trillions of dollars flooding the global system, the potential for misappropriation of recovery dollars by vested self-interests runs high.
Now is the time for companies to rebalance expectations away from maximizing short-term returns – the use of excessive debt and extended supply chains to reduce labor costs – towards the quality of those returns. In short, we have an opportunity to re-examine notions of efficiency in favor of resiliency.
Our Covid-19 moment presents us with the opportunity to retire the ESG label in favor of recognizing that what we’re really talking about is ‘finance 101’: the management of issues that are self-evident and influence good long-term corporate financial outcomes. Companies with poor ESG records may ultimately deflate shareholder value – and are likely to be held accountable if their behavior falls short as the trauma engulfing the economy unfolds. I won’t be the last to say that our present time has been challenging, unprecedented and even surreal. If corporations and investors alike remain vigilant, when the coronavirus tide finally recedes, it just might unearth a better, more purposeful world.
Andrew Parry, head of sustainable investment at Newton Investment Management