What do you value? What does society value? In the midst of the pandemic, key workers have become our heroes in the fight to beat the virus and keep life as normal as possible. Not just NHS workers, but refuse collectors, bus drivers, postpeople and those stacking shelves. When you strip an economy down you find the essentials. And yet, in recent times this part of our economy has been subject to austerity, cost cutting and pay freezes.
Let’s hope government takes a different view from now on, because Covid-19 is going to change the way we view the world, it will change our thinking. Perhaps our key workers will emerge as a new working class? The crisis has demonstrated that without government intervention our economy would almost certainly have collapsed, suggesting that free market forces cannot be left to determine what happens to people, society and the environment.
This shift in society’s focus is going to put companies under an intense spotlight and when this is all over there will follow a period of penetrating investigations into how companies have behaved. What values did directors and business owners display: did they treat staff fairly? Did they take pay cuts along with staff? How did they help those made redundant and furloughed? Did they protect their workforce or cut corners? Did they behave in the right way?
Businesses need a mandate from society to operate because they are an integral part of it and must work for the benefit of it and not just themselves. The ‘S’ in ESG is about this, about creating a fairer, healthier and better society. It seems likely that companies which haven’t demonstrated these characteristics will not be looked on leniently and pressured to change by shareholders, governments, the media and consumers. But companies that did do the right things should see big benefits, from attracting more customers to gaining staff loyalty, resulting in better productivity and profitability.
Underlying an approach to doing the right thing is a belief in equality in the workplace and in the supply chain, whether that’s local or global. This is where good governance plays a major role, and along with sound finances can put a company in a strong position. As we emerge from the pandemic, I believe these factors will drive companies forward more than ever before.
The closing down of large parts of the economy has resulted in pollution levels falling significantly – far less traffic globally and less industrial activity are of course behind this, and whilst it’s temporary and the need for economic activity to resume critical, it provides a glimpse of what a de-carbonised world might look like. Who hasn’t enjoyed the cleaner air? I even think the sky is bluer in Bristol where I live, and it’s certainly true in many cities around the world as satellite images show. Another benefit is that cleaner air is good for our health; pollution is responsible for the early deaths of many people, and initial research suggests it has been an important contributing factor in the Covid-19 death rate.
Pollution is the major cause of the climate crisis and makes the need to decarbonise the global economy urgent. If we don’t, the consequences will be severe. This structural shift is increasingly recognised by consumers, businesses and Governments who are progressively favouring products, services and policies that support sustainability. Companies that provide products and services which bring about and aid this structural shift are set, in my view, to offer some of the best investment opportunities of the coming decades. Again, as we emerge from the pandemic, I can only see the momentum behind these businesses growing.
Covid-19 will be a major influence on the economic landscape and society in the years ahead – it will provide the impetus to drive ESG investing to another level, and although economically things are going to be tough, the recovery will occur, but those sectors and stocks leading the way as we head towards 2030 will be different to those that led before. The environment, our society, and our values will be enormous factors and critical drivers in investment returns.
Tim Cockerill is an investment director at Rowan Dartington
