The COVID-19 crisis is wreaking havoc across global markets, interrupting global supply chains, drying up demand and, of course, taking a massive personal toll on affected families. Jon Duncan, Head of Responsible Investment, Old Mutual Investment Group, shared 3 lessons we can learn from COVID-19.
LESSON 1 – WE’RE ALL INTERCONNECTED
One of the founding principles of Responsible Investing (RI) is the interconnected nature of our social, biophysical and market ecosystems. Importantly RI recognises the impact of unpriced externalities on the safe operation of the market, society and environment. Examples include the social and environmental costs from burning fossil fuels or societal health impacts of high-calorie foods. By considering externalities in its approach, the RI field essentially asks all participants in the investment value chain to consider the wisdom of pursuing short-term returns at the expense of long-term resilience of social and environmental systems.
The COVID-19 crisis has laid bare the very real interconnectivity between our social, environmental and market systems. The lesson here is – don’t neglect interconnectivity and long-term system resilience.
LESSON 2 – SHARED VALUE
Professors Kramer and Porter of Harvard Business School penned their famous article on shared value in the early 2000s. In it they argued that the best business strategy to adopt in a world with increasing social and environmental pressures was one that generated profits while solving for long-term social and environmental resilience. They proposed a stakeholder inclusive model for capitalism which encourages value to be shared across participating stakeholder groups. In effect, this type of strategy requires company management to carefully consider a broad range of stakeholders and the associated business “impacts”. For some management teams, this is a sharp departure from the age-old adage that the business of business is business.
COVID-19 has been indiscriminate in whom it infects and doing so it has become everyone’s problem. Those with the best chance of fighting it are doing so collaboratively across a broad range of stakeholders. The COVID-19 crisis reminds us of the power of working proactively with all stakeholders to achieve shared value outcomes.
LESSON 3 – UNDERSTANDING THE SCIENCE
The field of Responsible Investing relies on much scientific data to make the business case for sustainability. Most asset managers with a focus of RI will thus have a clear understanding of the science behind climate change and the attendant risks and opportunities. Notwithstanding this, in the current age of populist politics, the role of science has increasingly taken a back seat.
Despite being one of the most scientifically peer reviewed publications produced by humanity, the Intergovernmental Panel on Climate Change assessment reports failed to inspire political leadership. Although the COVID-19 crisis is more near term compared to climate change, it is instructive to see how rapidly political leaders, despite their differing views, have fallen in line with prevailing medical and scientific consensus. The lesson of COVID-19 is – don’t forget the science. Importantly, asset managers with these specialist skills will be well placed to look ahead.
As tough as the lessons from the COVID-19 crisis are, we expect that they will strengthen RI as an approach to investments.
Find Jon Duncan’s full article “RESPONSIBLE INVESTING DURING THE COVID-19 CRISIS: SEEKING OPPORTUNITY THROUGH AN ESG LENS” at http://ww2.oldmutual.co.za/docs/default-source/omig-insights/fundamentals/q2-fundamentals-2020/jon-article.pdf?sfvrsn=2