The outbreak of a global pandemic raises many profound questions. It is impossible to look at the global health crisis and its knock-on effects, without considering environmental, social and governance (ESG) factors.
It is not possible to answer the myriad of environmental, social and governance questions that arise from COVID-19 while the debates are in their infancy. In the meantime, however, we look at whether COVID-19 will accelerate or decelerate progress and focus on ESG’s constituent parts.
Environment: Still the largest elephant in the room
Before COVID-19, the European Insurance and Occupational Pensions Authority (EIOPA) already had ESG in its sights – a way to ‘operationalise’ sustainability. The pandemic has intensified the scrutiny.
“What COVID-19 shows is how a health and environmental issue can become a profound social problem, causing material governance challenges for companies and countries alike” says Steve Waygood (pictured above), chief responsible investment officer at Aviva Investors. “It shows how such challenges do not respect national borders. It’s an ESG stress-test for the global economy.”
COVID-19’s origins are fiercely debated; it’s one of a growing cluster of zoonotic diseases (conditions passed from animals to people) that have resulted from humans coming into close contact with other forms of life.
“The relentless incursion of human systems into the remaining natural world is forcing wild animals into ever closer contact with us, and hence us into contact with the viruses and diseases these animals may carry,” explains Rick Stathers (pictured below), senior ESG analyst and climate specialist at Aviva Investors. “But with only 23% of the world’s land mass remaining as wilderness, and only 5% of animal biomass being wild (95% is humans or domesticated animals), these species increasingly have nowhere left to run.”
In the first phase of the COVID-19 response, few governments have grasped the opportunity to pivot towards a greener recovery immediately. The initial wave has included support for carbon-intensive sectors. “Governments need to ensure that we build back better from this crisis,” says Waygood. “For example, bailouts of energy intensive sectors such as oil and gas, autos, chemicals and airlines should be conditional on assurances of a commitment to transition towards a lower carbon future.”
Having fallen down the list of priorities for policymakers and companies for now, the question is whether decision-makers will prioritise sustainable initiatives as economies move into the recovery phase.
Social: Inching towards more inclusive capitalism
When it comes to social considerations, the long-running debate about the purpose of a corporation has been reinvigorated by COVID-19. What are companies for? Are they here solely to generate profit, pay tax then distribute the remainder to shareholders, as Milton Friedman famously suggested? Or should they pursue loftier goals, serving or even improving society?
During the crisis, collaboration has been the name of the game. In pharmaceuticals, public and private resources have been pooled to try to find vaccine candidates, test them and bring them to market more quickly. Notable