Update Magazine III/2020 DOWNLOAD THE COMPLETE MAGAZINE
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A critical period to change direction

The climate emergency continues to be one of the most pressing issues facing our world today. Policymakers should seize the opportunities created by shifts in markets and behaviours to accelerate change, focusing where possible on areas in which the Covid-19 recovery and decarbonisation priorities are most closely aligned. A May 2020 paper from the Smith School of Enterprise and the Environment at the University of Oxford underscores the urgency. The authors concluded that “progress on climate change will depend significantly on policy choices in the coming six months”, arguing that “the right choices could drive a long-term downward trend in greenhouse gas emissions”.

To create a decisive green transition, governments must target their stimulus spending while helping to shape markets that deliver for people and the planet. Fortunately, many governments – including those in Canada, Germany, France and South Korea – have already signalled that they intend to pursue that direction of travel. The European Union has published ambitious proposals for a recovery plan to build “a more sustainable, resilient and fairer Europe”. Global leaders have recognised that the UN Sustainable Development Goals (SDGs) can support global responses that “leave no one behind”, and there is a growing consensus around the need to mobilise significant private capital to deliver on these ambitions. This creates opportunities for investors.

Research shows that many stimulus measures aimed at decarbonisation have high job creation potential and economic multipliers.

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Time to reconsider “social” outcomes

The Covid-19 pandemic has had an outsize impact on the world’s poorest citizens, and highlighted the poverty and vulnerability experienced by millions of people, for whom decades of economic growth and development have failed to deliver prosperity and security. This is prompting more investors to focus on social issues and human rights, bringing much needed attention to the “S” in ESG (environmental, social and governance).

To help these efforts, the investment industry must improve the methodology and data for incorporating social outcomes into investment strategies, the allocation of assets, and overall stewardship. Corporations must also do their part, and many are leading the way in defining their social purpose and impact.

International human rights standards have also been sharpened, offering companies, investors, policymakers and other stakeholders a framework on which to build a fairer, more inclusive and resilient economy.

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Expect more scrutiny of corporate purpose and value

The pandemic has sparked renewed scrutiny of corporate purpose, and the role that the responsible investment industry can play in shifting businesses towards sustainable development objectives. Companies will be expected to take a responsible approach towards capital allocation decisions – particularly on the issue of executive pay. Stakeholders increasingly expect pay to be tied to performance, which should include the impact on employees, suppliers and communities. And recipients of bailouts or stimulus funds will need to demonstrate even more clearly how funds will be used to create value for a range of stakeholders.

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Successful implementation also takes clear fiscal and monetary policies

As governments respond to the crisis affecting their citizens, they need to incorporate sustainability objectives into the financial stimulus and policy mechanisms that support the recovery. So far, we have seen fiscal stimulus and monetary policy that are reminiscent of wartime in their scale and scope. The Fed’s decision at their Jackson Hole symposium to opt for a flexible average inflation target is a clear sign that monetary policy will stay (too) loose for a prolonged period of time. While these fiscal and monetary policy stimulus measures have been appropriate during the corona crisis, given the urgent need to kick-start the economy, a credible exit strategy is needed medium to long term on multiple fronts:

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The world needs urgent action and cooperation on many fronts

To address the Covid-19 crisis effectively, governments, investors, asset managers and other stakeholders must work together to design policies that are transparent, effective and aligned with sustainability goals – while securing funding that can accelerate solutions.

Investors have a clear role to play, but it’s also incumbent on the investment industry to act responsibly and encourage policy change.

As an active and responsible asset manager, we owe it to our clients and beneficiaries to support a recovery that is sustainable and inclusive – and delivers concrete reforms.

We are confident that our colleagues in the investment industry will do the same, as we address today’s global challenges together.

² The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. We assume no obligation to update any forward-looking statement.
³ Past performance is not a reliable indicator of future results.

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