There is no doubt global interconnectedness accelerated the spread of Covid-19. But the very concept of interconnectedness could also be the answer to tackling such global challenges.
Globalisation has lifted millions of people out of poverty and unemployment. It has increased interdependence, facilitated the integration of different cultures and resulted in the virtually instantaneous exchange of information.
There are also downsides. Competition to meet our global demand has resulted in overexploitation of natural resources and unsustainable practices, with rising population growth and socioeconomic trends linking into biodiversity loss, climate change and the emergence of new, communicable diseases.
The world requires investment on a massive scale to address these challenges. However, while many of these issues are deeply interconnected, they are often addressed singularly. This is not necessarily the most effective way of delivering on sustainable investment targets.
Instead, the asset management industry should consider a 'nexus approach' to investing, which examines different interactions and links among multiple sectors.
Identifying a nexus of interconnected and interdependent factors could help investment managers understand the consequences of various scenarios and identify complex and dynamic interactions, such as the co-benefits among sectors.
Indivisible and interlinked
Take the current coronavirus outbreak as an example. For years, scientists have forewarned of the 'spill over' of viruses from animals into humans.
The spread of new, infectious diseases involves a complex interplay of human, animal and ecosystem health. This is set against an environment that includes global travel, social mixing and stretched healthcare systems.
Lapses in environmental health are increasingly recognised as major contributors to illness and death, and this is further exacerbated by human-made environmental problems including deforestation, biodiversity loss and climate change.
The pressure we are placing on the Earth's finite resources, the insatiable demand for more animal proteins, the destruction of biodiverse hotspots and the forces of climate change are all interlinked. Investors should think about focusing on these global issues holistically, rather than in isolation.
Active asset managers are expected to engage with companies to make sure they have understood the business risks and opportunities related to these challenges. In the wake of Covid-19 we will increasingly see investee companies being called upon to demonstrate an awareness of how biodiversity loss, ecosystem degradation and pandemics can impact their businesses, and the steps they are taking to mitigate the risks.
The detrimental effect the novel coronavirus has had on complex supply chains and companies' abilities to operate with a diminished workforce has rapidly changed the playing field in only a few months.
Understanding how companies are positioned to deal with immediate supply chain disruption and a sudden loss of consumer confidence will force responsible investors to reappraise how they evaluate investee companies through an environmental, social and governance (ESG) lens.
As we come out of this crisis, there will be an increased focus on disaster recovery procedures.
The companies that are emerging as winners are those that have demonstrated dynamism, agility, innovation and adaptation; credentials that responsible investors will increasingly seek, as they too evolve in response to the pandemic.
Ultimately, tackling communicable diseases, supporting sustainable production and consumption, and maintaining ecosystem strength to build capacity for adaptation to climate change, will all have an impact on longer-term financial returns.