Private view blog: Coronavirus might just help us build a better world

As the economic fallout from the coronavirus pandemic unfolds, and markets continue their relentless rise despite the grim reality, it is crucial investors do not let long-term goals slip from focus.

The global pandemic has highlighted how the health of our planet affects human health which, in turn, affects our economy and the way we live and work.

Scientists warn that Covid-19 is intrinsically linked to the world’s climate and biodiversity emergency, as pandemics can originate when pathogens cross from animals to humans, which is most likely when their habitats are destroyed. As global warming increases, driving the collapse of habitats and ecosystems, the risk of future pandemics increases with it.

The crisis has also painfully laid bare and exacerbated the structural inequalities in society, while companies’ responses to the public health emergency are being carefully scrutinised by investors, in terms of their social and governance policies too.

Yet, the crisis offers institutions, governments and individual investors a unique opportunity to break from the past.

“If there is a silver lining in such a devastating crisis is the prospect it presents us to change. As we emerge from the crisis, we need to ensure that responsible investment is the only acceptable norm,” says Fiona Reynolds, managing director, United Nations Principles for Responsible Investment. “We need a new normal, and we need to reach it via ensuring that the recovery from Covid-19 is sustainable, green and inclusive.”

This crisis has also shown that businesses and governments can deploy an incredible amount of resources in a very short time frame, on a global scale. The same sense of urgency and global coordinated response is needed to tackle the climate emergency, which is the “most serious and long term threat we are facing,” adds Ms Reynolds.

Wealth inequality

Covid-19 has disproportionately impacted the poor and most vulnerable, because they are least equipped to be able to contain its spread and to recover afterwards.

“The pandemic is a catalyst to recognise that we need to find a solution, and the motivation for impact and sustainable investing is in fact to address and bring capital to the places where it is most needed,” says Andrew Lee, head of sustainable and impact Investing at UBS Wealth Management.

More than 30 developing countries could experience “famine of biblical proportions”, warns the UN’s food relief agency, as their fragile healthcare systems will be unable to cope, while humanitarian relief efforts are being hindered by lockdowns and travel restrictions. This “hunger pandemic” is forecast to affect 265m people around the world by the end of this year, a doubling of the 130m estimated to suffer severe food shortages in 2019.

The healthcare emergency is clearly taking a heavier toll on ethnic minorities.

In the UK, a recent Public Health England report found that after accounting for the effect of sex, age, deprivation and region, those with Chinese, Indian, Pakistani, other Asian, Caribbean and other Black ethnicity have between a 10 per cent and 50 per cent higher risk of death when compared to white British people.

In the US, data compiled by APM Research Lab show African Americans have died from the disease at almost three times the rate of white people.

Black Americans account for 13 per cent of the US population, yet represent 25 per cent of all coronavirus deaths. A key reason for that is that black workers hold a higher proportion of jobs as essential workers on the frontline in public transport, grocery stores, and healthcare, as well as in cleaning staffs across businesses. Inadequate access to healthcare, high rates of poverty and crumped living conditions have combined to make the virus especially deadly for black people.

Building a better future will also means having greater focus on wealth and racial inequality, while guaranteeing healthcare for all.

This unprecedented crisis offers investors the opportunity to challenge their values and preconceived ideas, the chance to sit back and evaluate the ‘rule book’ that has long been at play in finance, argues Amy Clarke, co-founder and chef impact officer at London-based impact wealth management firm Tribe Capital.

For instance, who are the real key workers on the planet? Has human capital been priced incorrectly? Is the investment community really able to understand the future value of a company?

Future proofing investments

The pandemic gives individuals a roadmap and an opportunity to examine their behaviour, what kinds of investments they have, what and how much they are consuming and how they are supporting people at the base of the pyramid, adds Ms Clarke.

More and more people are recognising they want to future-proof their investments. There is increasing awareness that responsible and impact investing give investors and wealth owners the opportunity to choose the kind of future they want to build, by investing in those companies that are either already part of the solution, or are wanting to transition to become ‘future businesses’ which can achieve real impact.

It is encouraging that sustainability-focused funds attracted a record amount of capital in the first quarter of this year, even as the pandemic rattled worldwide markets. Global sustainable funds saw inflows of $45.7bn, while the broader fund universe had an outflow of $384.7bn, according to Morningstar.

Importantly, according to several research studies, many sustainable funds have outperformed their traditional counterparts, during what has been the first real market downturn for ESG investments.   

“The type of companies that are likely to perform better over the next 10 years or so are companies that are innovative, that are focused on new technology, new processes and creating greater efficiencies,” says Shannon Saccocia, CIO at Boston Private. And there is considerable overlap between these types of firms and ESG metrics.

Sustainable investing offers investors the opportunity to express their values but also to get exposure to areas of the economy that are likely to continue to do better in the future.

Companies that are committed to supporting their workforce, are improving their governance or are reallocating their resources to support the fight against coronavirus will also be better positioned after the crisis. They will be more resilient and likely generate greater financial performance, she adds.

For all its devastating effects on people and the economy, the coronavirus could be transformed into a massive opportunity for change. Sustainable investing could play a key role in re-building a better world, whilst also offering investors healthier returns.

Elisa Trovato is deputy editor of Professional Wealth Management. Follow her on Twitter  @elisa_trovato 

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