How has COVID impacted ESG investing?
- Short-term benefits, but a sustained commitment to environmental reform
- Push for an empowered, diverse, and skilled board of directors
- An increased need for upskilling the workforce
- Demand for ethical and fair treatment of workers
- A new generation of investors new to ESG
Investors today are increasingly using environmental, social, and governance (ESG) factors as key considerations when evaluating companies. Companies that embed ESG principles into how they operate demonstrate their social awareness, and their concern for both their communities and their planet.
The pandemic has drawn these factors and principles into sharp focus — and has greatly influenced ESG investing as a whole. This prompts new trends, which businesses should be aware of as they adapt their sustainability strategies. Here, we discuss how COVID has impacted ESG investing. Read on.
Short-term benefits, but a sustained commitment to environmental reform
When considering the environmental impact of the COVID crisis, we often think it is positive — after all, the satellite images from the European Space Agency (ESA) and NASA after the first few months of the pandemic did show a substantial drop in nitrogen dioxide concentrations in many countries.
However, these short-term benefits for the environment came with a significant loss in momentum in the fight against the climate change crisis. Furthermore, this crisis is interlinked with the spread of infectious agents — statistically, we are more likely to experience similar pandemics in our lifetime.
This is because environmental degradation displaces fauna in a way that creates new opportunities for pathogens to enter new animal hosts, and potentially, humans. Thus, policymakers around the world are re-committing themselves to environmental reform and pushing for green tech solutions across sectors. This is in hope that they transform key areas into net-zero, circular, sustainable, inclusive, and resilient industries.
Push for an empowered, diverse, and skilled board of directors
The pandemic solidified the concept that today’s society cannot rely solely on the government — but also on well-functioning companies. These two sectors must work together to protect ecological wealth, create inclusive growth, and provide livelihoods for everyone.
However, many companies failed this large-scale stress test as they did not have the framework nor good governance needed to reorganize value chains and policies rapidly.
Thus, it is important, now more than ever, to have an empowered, diverse and skilled board of directors. This helps establish more resilient and effective business policies to navigate such crises. They will also have the skills and knowledge needed to exemplify these values and accountability across the value chain.
This need for a new kind of board of directors has proven results. Studies show that companies with higher governance scores have outperformed their peers globally in the last year.
An increased need for upskilling the workforce
While the COVID pandemic was indiscriminate in who it infected, the social and economic impact of this health crisis was not equal for all. Likewise, many businesses have had to downscale, and have lost valuable talent for their operations.
To combat this skill gap, reduce employee turnover, and retain their workforce, businesses must reskill and empower their people. They must equip them with new capabilities, including digital skills, to make them more employable, effective, and well-rounded in these changing times.
Demand for ethical and fair treatment of workers
Investors are more aware of how healthcare is a crucial factor in the risk management embedded in ESG strategies.
Thus, they are paying close attention to how businesses take care of their people — specifically in terms of health safety, health security, and insurance policies. They want to see businesses concerned with societal safety and healthcare and provide the means for their employees to take care of their well-being. This is because we now understand that this directly impacts the well-being of businesses, and their ability to operate, as well as the safety of society at large.
An urgent priority for businesses is to invest in health safety measures, such as protective gear, and introduce and/or extend sick leave provisions. Investors are also valuing companies who can accommodate flexible work conditions and hybrid teams.
We are already seeing significant gaps opening up between companies that pay attention to their employee’s health needs and those that fail to do so. Social media platforms, in particular, are very active in calling out these companies neglecting their responsibilities to their workforce — showing that ignoring this new trend could lead to your business facing consumer hostility later.
A new generation of investors new to ESG
That said, most ESG-oriented investors nowadays are relatively new to the concept. More than half of this new group of stakeholders took up investing in ESG-related products in the last few years, reports show. In the same report, it was found that less than a fifth have more than a decade of ESG-oriented investing experience.
That said, ESG investors are likely to grow in number and strength, going forward. This is due to millennials and younger generations being more socially- and environmentally aware, and these concerns dictate where and in whom they want to invest. Increasingly, this new generation of investors wants to dedicate their money to companies that align with their values and are concerned with sustainable development for the benefit of both current and future consumers.
As it stands, this new mindset and principles have a high chance of becoming the standard for investing in the future.
In this closer look into how COVID impacted ESG investing, we see that there is a drastic shift in investor priorities. In every global crisis lies the golden opportunity for businesses to step up and improve how they operate — and the COVID-19 crisis has revealed many opportunities for businesses in ESG commitments.