WHAT’S ON THE HORIZON?
As a result of Covid-19, companies have come under increased scrutiny with respect to their progress towards putting sustainability targets and contingency plans in place related to sustainability risks. Many of the organisations that will emerge from this crisis successfully are those who drove a modal shift towards sustainable investing and establishing strong ESG practices. Not only will this help in accelerating the global recovery from the pandemic, but it can foster a more resilient society and economy for the future.
J.P. Morgan polled investors from 50 global institutions, representing a total of $12.9 trillion in assets under management (AUM) on how they expected COVID-19 would impact the future of ESG investing. 71% of respondents said it was highly likely that the occurrence that a risk such as Covid-19 would heighten awareness and actions globally to tackle high impact /probability risks such as those related to climate change and biodiversity losses.
Using the broadest classification for the ESG market, assets following global sustainable investment approaches could reach around $45 trillion AUM by the end of 2020. Corporations and investors that aspire long-term success are likely to increase, rather than slow down, their sustainability efforts.
The pandemic has acted as a warning to the much greater challenge arising from climate change. In his famous speech, Mark Carney, then Governor of the Bank of England, argued that the catastrophic impact of climate change will be felt beyond traditional horizons and will impose a cost on future generations that the current one has no incentive to fix. Thus, public investments can serve a catalytic function in this context.
In a speech published by the European Central Bank (ECB), Isabel Schnabel states that the coronavirus crisis offers a must-seize opportunity and the costs of letting it go to waste would be exceptionally large. There are considerably lower shares of both growing and shrinking firms than in other advanced economies, holding back productivity growth as well as technology creation and diffusion.
The European Green Deal is the cornerstone of the EU’s response to the Covid-19 pandemic, given the massive amounts required for a sustainable and green recovery. ESG products have demonstrated their resilience during the market decline caused by the pandemic and will play a pivotal role in accelerating the transition to a sustainable economy.