The upcoming amendment to MiFID II, UN COP26 in Glasgow and more asset managers embedding ESG into their investment processes but then along came Covid-19. However, rather than putting the brakes on the momentum built, the pandemic has perhaps given ESG a further angle for consideration.
The pandemic has perhaps given ESG a further angle for consideration.
The origins of ESG in its current form can be traced back to the early work of the UN Global Compact initiative and subsequent creation of the UNPRI in 2006. However, people have been taking ESG factors into consideration for years. For instance, look at the East India Company - at one point they accounted for more than half of the world’s trade, but part of their downfall stemmed from their involvement in the slave trade. At the time, a lot of their customers said that this was wrong and stopped buying products from them. An employer’s treatment of its employees as well as its record in health and safety remain key social factors today.
Spearheaded by the global focus on climate change, business responses to environmental trends continue to be increasingly scrutinised as do corporate governance factors. This includes boardroom diversity, bribery and corruption, as well as corporate culture. Corporate culture is particularly interesting in the context of how different businesses are responding to the pandemic, and is adding a new lens to ESG considerations.
Brewdog has used its distillery to produce hand sanitiser and is distributing the product free for those who need it most.
Businesses such as Nationwide and Iceland announced very quickly that they’d be opening earlier in the day to support more elderly and vulnerable customers, and I dare say many more examples will follow. There have also been examples of businesses switching production to ventilators and other safety equipment. Brewdog has used its distillery to produce hand sanitiser and is distributing the product free for those who need it most.
On the flipside, Sports Direct and Wetherspoons have come in for widespread criticism for their initial reactions to the crisis. Sports Direct announced their intention to remain open based on believing they provided an essential service to society before reversing that decision. They were also accused of hiking their online prices.
Wetherspoons called for pubs to remain open with increased social distancing measures instead of closing and announced that no employee would be paid until the Government fulfilled its promise to cover 80% of the wages of workers affected whilst closed for business.
Over the coming weeks and months, I’m sure we’ll see more pressure to behave in a way which better benefits the overall society with corporate governance and social responsibility being scrutinised like nothing before and fuelling the momentum for ESG investing even further.
Those businesses displaying strong ESG performance could signal that it is more naturally aligned to longer term strategic thinking and taking this into account can result in better investment decisions being made. It may seem odd saying this during a global health crisis, but I’d argue that ESG investing should be front and centre of advisers’ minds right now. That’s because embracing ESG has the potential to improve financial outcomes for clients and once this pandemic is over, ESG considerations are going to be more important than ever.
It may seem odd saying this during a global health crisis, but I’d argue that ESG investing should be front and centre of advisers’ minds right now.
2020 may be remembered for the year we went into lockdown, but I also think it’ll be the year we look back at as a game-changer for ESG considerations.