Romina Graiver: Investment demand for ESG integration accelerated over the recent years with a special focus on environmental issues given rising risks of climate change. What was surprising in my view during the COVID crisis was the resilience that ESG demonstrated as the commitment of companies and investors were stress tested during this period. At a time when we could have seen investors and corporates reverting to a sole objective of maximizing profit and shareholder's return, we saw in fact that companies allocating resources and making nimble decisions to protect and support their employees, their customers, and their suppliers as well as their broad communities.
We expect the companies that demonstrated strong social credentials to reap the benefits of the lower turnover and highly motivated employees, stronger partnership with their suppliers, and more loyal customers, and for these benefits to have long-lasting positive effects.
As regards environmental factors, these logically took a backseat during the peak of the pandemic.
In the meantime, reduced economic activity came along with a sharp reduction in CO2 emissions, which are expected to drop by 6% to 8% in 2020. However, as economies recover, these emissions are expected to rebound, making it increasingly hard to meet the sustainable development goals for climate and health. In some way the COVID-19 pandemic provided a sense of the magnitude of the task on hand as greenhouse gas emissions will need to drop by approximately the same amount as this year—so, 7.5% each year over the next 10 years—for the world to get back on track with a 1.5 temperature goal of the Paris Agreement. Beyond the immediate reaction, the similarities between COVID-19 pandemic and climate change, which were both broadly considered a tail-risk event, highlight the urgency of climate change, as well as the importance of backing policy on science and evidence and the extreme cost of tackling the issue versus preventing it. All these makes the case for a stronger environmental focus going forward.
It is evident that societal changes emphasized with the recent movement of social justice, for instance, will require companies to up their game or risk losing their license to operate. Meanwhile, the economic crisis has presented a unique opportunity for governments to accelerate their environmental agenda by promoting a green recovery. All these will create risks and opportunities for investors and will require a deeper incorporation of ESG lens in investment decisions going forward.