Is COVID the big reset the world needed?
As the world considers what a post-COVID future holds, this is also a time for reflecting on how our world has changed. From an investor point of view, navigating the new normal demands that you look to how these changes are going to influence our lives in the years to come.
Those changes could be quite profound if you consider the way in which the pandemic has shifted mindsets on many aspects of daily life. Attitudes to work-life balance, for instance, came into stark relief while corporate practices and priorities have undergone a similar upheaval.
So much so, that principles promoting business practices and operations that are more fair, just and green are likely to take centre stage as companies reset after COVID-19.
As discussed in this article on how ESG is changing the face of finance, Standard Bank Group’s head of sustainable finance, Greg Fyfe, points out that the ESG (environmental, social and governance) investing theme has been growing in popularity over the past decade or so.
He writes that trend analyses confirm that companies taking ESG seriously are outperforming companies that don’t. For instance, the MSCI EM ESG Leaders Index has significantly outperformed the MSCI Emerging Markets index over the past 10 years.
Here are four ways that we believe sustainability will continue to rise in prominence in the boardroom, further entrenching the pursuit of purpose-driven investment opportunities.
Sustainability to the fore
One lesson that COVID has taught many a business leader is that resilience and adaptability are key to surviving events as unexpected and devastating as the pandemic.
Even today, many carmakers are struggling to maintain full production because crucial parts of their supply chain are still hobbled because of COVID restrictions or backlogs.
The message is clear from management experts including Deloitte, PwC, accenture, and EY that resilience is the key to survival and that it’s no longer business as usual. The emphasis on sustainable business practices, and supply chains, in particular, aligns perfectly with sustainability principles that guide ESG thinking.
Many companies learned through the pandemic that they can be empathetic - whether to employees or to customers and clients, like tenants - and still survive.
In fact, showing a caring side has won many organisations greater acclaim and appeal.
Greg writes in his article about the growing consumer consciousness of the environmental consequences of decisions they make. A 2020 Boston Consulting Group survey shows that the pandemic made about 90% of consumers more ESG-conscious.
What this signals is that the rules of engagement have changed forever and that corporate aims can no longer be divorced from those of the communities they serve. They both now stand on a level playing field, allowing local communities a more equitable share in the spoils.
For some communities those spoils might be financial, but others win simply by having a clean, safe environment for their families to grow up in.
While corporate transparency has progressed in leaps and bounds over the years, the pandemic has allowed organisations to build closer, more authentic, connections with their customers.
At a time that the whole world was vulnerable, organisations were able to show their vulnerability by being more open and transparent in their conversations with customers and stakeholders.
Corporate reporting standards have come some way by focusing on many non-financial measures that reflect the true value and health of a business. This culture of transparency is at the forefront of ESG reporting, and is expected to become the norm rather than the exception.
COVID-19 has laid bare all organisations’ weak points. For some that was in a supply chain too reliant on certain suppliers or regions, while others had to face the consequences of having too many eggs in one basket.
Most crucially, the lesson was driven home that the success of a business rests not only on looking after its financial risks. The pandemic showed that operational and reputational risks abound in good times and bad, and that these need to be carefully managed for long-term success.
This demands a more active engagement by company management in operations to ensure that these risks are not only known, but dealt with.
There is growing evidence that companies scoring better on ESG measures tend to deliver better returns for investors. This is not because ESG investing is a fad, but because the changed habits make the companies better at what they do.
By being more engaged and transparent, they’re actually able to make a difference, and thereby create value for customers, communities, employees and investors alike.
You can claim your share of this investment trend by participating in our ESG-linked Structured Products. These are limited-time offerings that are released a few times a year to interested investors. Our ESG Structured Products typically track the performance of the S&P 500 ESG Index, which gives you broad exposure to companies ranked highly on ESG measures. Best of all, it comes with capital protection* against a fall in markets if you hold the deposit to maturity.
Speak to your advisor or relationship manager if you wish to participate in this opportunity.
*Capital protection refers to the Product’s design to repay your original deposit in full, in the deposit currency, providing you retain your deposit to the Maturity Date.