Planet under Pressure

ECONOMIC LESSONS
Case in point: In a mid-April internal survey
of our own investment professionals,
more than two-thirds of respondents said
they believed Covid-19 would make ESGrelated
factors more financially relevant
to a firm’s bottom line going forward,
even in the short term. Equally interesting,
respondents signaled a shift from an
“Esg” focus pre-crisis to an “ESG” focus
moving forward – with the materiality
of S and G considerations seen in heightened
relief during the crisis and response.
The reason for this is clear: The Covid-19
crisis is above all things a health crisis.
Companies – acting under the scrutiny
of public authorities, unions, and
broader society – have had to quickly
plan and adapt to ensure the health and
safety of their employees, demonstrate
commitments to safeguard jobs, and
mitigate the worst consequences of activity
loss for customers and supply chains.
Our research has found that across 15
leading sustainability themes (five each
across environmental, social, and governance
pillars), the strongest relationship
to short-term performance during the
Q1 market displacement was found in
customer relations (“S”), firm culture
(“S”), and board effectiveness (“G”) –
all indicators pointing to adroitness in
pivoting quickly to address immediate
stakeholder needs.
Just as resilience and adaptiveness have
been valued in the near term, maintaining
a strong “social license to operate”
will matter more going forward – particularly
among companies that have
received public support, or those that
have suffered less and may be better
positioned to contribute. Embedded in
this stakeholder focus is the transformation
of the core principles of corporate
governance: Companies are facing pressure
from governments around the world
to cut dividend payments beyond the
lifetime of the crisis, to reassess executive
remuneration, and to overhaul risk
management policies to better prepare
for systemic risks. In the longer run, the
manner in which firms serve their stakeholders
during the Covid-19 outbreak
may prove to be a key differentiator for
companies looking to accelerate out of
the crisis on the back of strong employee
satisfaction, corporate culture, and brand
reputation, especially in regulated sectors
and those that will benefit from
public financial support.
In short, the rising salience of stakeholdercentric
issues in the Covid-19 crisis has
reinforced a shift in the balance between
shareholder and stakeholder capitalism,
with health, social, and employment
concerns moving workers and the community
into the investor’s focus.
Despite the very human nature of the
Covid-19 crisis, its lasting impact on how
investors price sustainability considerations
will not just be an “S” and “G” story.
The experience of a global health pandemic
has also made the slow-moving,
catastrophic consequences of climate
change, deforestation, and other onceabstract
threats to natural capital suddenly
much easier to imagine. As we
move into the new normal, a legacy of
the Covid-19 crisis will be a validation of
the structural shift toward sustainable
strategies, and an evolution of material
sustainability insights focused across E,
S, and G.
A final way the Covid-19 crisis may shape
the future of sustainable investing is an
increased focus on mapping ESG factors
onto the United Nations Sustainable
Development Goals, as governments internalize
new social and environmental
challenges and as stakeholder capitalism
gains traction. The SDG framework is
well-adapted for alleviating the worst
social and economic impacts of the
Covid-19 crisis, as well as the natural
capital issues that lead to the conditions
which make future pandemics more
likely. Better understanding the alignment
between the SDGs and financial
materiality – where doing good also
means doing well – could open a path
for impact objectives to also benefit from
a broader market reallocation to sustainable
strategies.
Meaghan Muldoon
Managing Director
Global Head of ESG Integration
at BlackRock
Global Goals Yearbook 2020
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