Having listened to Mark Carney talking about the environment at the Pimfa Virtual Fest it led me to revisit the topic of ESG with the current crisis as a focal point.
We have had global crises before but never one like this.
The 2008 Global Financial Crisis and subsequent recession led to a prolonged shifting of priorities away from a commitment to environmental priorities as countries and businesses just strove to reassert their positions.
However, it may be this time that even with many of the same dynamics at work in the current Covid-19 crisis the drive to an environmentally and socially sustainable recovery will be more in focus among the public.
This crisis is very unique among post-war recessions in that it is driven by physical risk and not just financial. All companies will have to map, prioritise, and mitigate their physical risks to staff and customers.
This will inevitably lead businesses to completely reassess their workplace environments, staffing requirements, travel, event attendance, and all the attendant risks.
We may, therefore, see other physical threats, such as climate change, coming into sharper focus in business contingency planning.
As governments have implemented lockdown measures around distancing, workplace and travel environments with control measures not seen since the Second World War companies are having to completely re-engineer their operations.
All nations are faced with an imperative economic need to rebuild business productivity and national governments having adopted a stronger interventionist platform will likely continue to use this approach to drive their environmental agendas.
Current conditions mean governments have something of a public mood of compliance, and they will most likely use these additional levers to pursue their ESG-based policy objectives.
There are already examples of governments within Europe, such as the state aid offered by France to Air France which came with significant ESG conditions. While this may seem opportunistic in the current circumstances that has never really stopped politicians driving their agendas.
I suspect we will see more of these types of conditions set by governments who are committed to their ambitious net-zero carbon targets.
The human impacts of this crisis have been, and will continue to be, immense. Companies will be compelled to consider much more attentively their staff and the impact their operations have on the community.
Unlike the 2008 crisis, we are now faced with a public more educated to the benefits of good ESG practices, so businesses will have to be much warier of the reputational harm that their immediate response measures will have.
As we move through the business phases of survival to recovery to resilience the public and government will be keenly attuned to how companies address these issues.
The public is becoming much more aware of the E in ESG and the discussions happening in the media about cleaner air and the demonstrable drop in emissions will feed a desire among many to avoid a complete return to what had gone before in environmental issues.
The crisis will provide a wake-up call for better corporate risk governance. This lesser understood element of ESG will come more to the fore. While only a few commentators predicted the potential for a major virus outbreak, the need for businesses to better understand and manage physical risks is now proven.
Contingency planning has, to date, largely focused on areas such as data breaches, security, and environmental or health and safety accidents. It will need to broaden beyond the people, products, impacts, and a whole lot more.
What might this mean for advisers and their clients? I suspect a deeper and broader discussion with their clients on the whole subject of ESG.
There will be a continuation of the direction of travel in innovative new products which has already started with early issuance of new socially linked financial products such as social or Covid-19 bonds. These bonds are typically linked to medical research or equipment or projects to alleviate unemployment in the most badly affected regions.
As the longer-term effects of the pandemic become clearer, we should see more efforts in these areas giving further impetus to the fledgling but economically significant social element of ESG-focused financial products.
This article first appeared in Money Marketing on 15 June 2020.
By Lee Robertson, CEO of Octo Members Group