Sustainability is on the front foot in a Covid-19 world
No time for half measures in ESG push
Nobody could have predicted the Covid-19 pandemic, nor the health crisis that ensued. The risk of infectious disease was not at the forefront of concerns for any investor, 'sustainable' or otherwise
While arguably the greatest challenge of our time, it has also accelerated one of the biggest opportunity sets for investors - the pivot towards sustainability.
Over the past decade, sustainable and green funds have more than demonstrated their capacity to create value.
Indeed, they fared better than their counterparts against the precipitous market drop of the pandemic's first weeks. Investors behaviour bears this out. Over the first three months of 2020, sustainable investment funds saw inflows of €30bn in Europe.
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Simply put, longer horizons make for better risk management across the board.
Mission possible
The data clearly shows that the crisis has strengthened demand for responsible finance - or green, or sustainable finance if you will - and this for four main reasons, namely: its vision of companies' societal role, its concern with long-term risks, its capacity for value creation and, lastly, because it is consistent with the prevailing political agenda.
However, the success of sustainability becoming embedded in everyday thinking of investors, companies and the wider investment ecosystem is dependent on finance seizing the moment, and this is very much dependent on finance working hand in glove with governments.
Governments will need to be more demanding and financial services need to establish robust standards that forestall greenwashing, implement the association of aid and subsidies with genuine ESG commitments and leverage private investment in a sustainable economy.
In 2008, it was the financial sector that precipitated the crisis. Roundly castigated for its opacity, its arcane complexity and its lack of connection with the real economy. Cornered and accused of any and all wrongs, it is only fair to say the financial industry was hardly well-placed to reinvent itself a decade ago.
Today, there is no excuse. Circumstances have bequeathed it a mission, a 'purpose', a public interest objective it is too far from achieving.
The transformation of the financial sector will not, however, happen on its own. A year ago, the Business Roundtable, a conservative lobby comprised of major US corporations, brought its 250 CEOs together to announce the demise of the 'shareholder value' theory.
Yet no concrete steps were taken to dismantle the effects of the 50-year-old myth according to which the head of a company must single-mindedly pursue the sole objective of maximising shareholders' stock value.
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And herein lies the promise of the moment at hand. Never before have authorities, whether political or economic, placed so much emphasis on the need to invest in a sustainable and inclusive economy.
Renewables, energy efficiency, clean mobility, accessible healthcare for all, circular economy, pesticide-free agriculture: the investment theses of sustainable finance are now echoed by all.
To do so, governments must inject massive amounts of capital into the economy via the financial sector, which, this time is not cast as 'the enemy'.
Instead, exposed as it is to the entire economy, its interests are largely aligned with that of public authorities.
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