The main concern that is paralysing the financial markets right now is uncertainty. Investors and the business community are questioning how long this crisis will last, and when consumer and investor confidence will return, with no end in sight.
But while none of us can predict the future, when it does return, one possible outcome is that the crisis could cause an unprecedented shift in capital — potentially for the better. Why? Because coronavirus is a test of which companies will be most resilient to another global crisis: climate change.
Over the last few years, we have seen financial institutions and global companies promise to adopt environmental and social initiatives as the penny — the global climate threat — drops. Encouragingly, many of the world’s largest firms seem to be increasingly aware of the risk that climate change poses to their business models. Business news in the months leading up to the coronavirus crisis was dominated by pledges to cut emissions, promises to build sustainable portfolios, and the emergence of in-house ESG teams.
But while progress has certainly been made, global emissions have continued to rise to the highest level on record.
The clock is ticking to address the climate crisis. The required technology and awareness for change is already here: what is now needed is a wake-up call for this change to become reality. And Covid-19 could be that wake-up call.
Capitalism in its current form threatens value — and is more vulnerable to losing it. Sustainable capitalism, on the contrary, creates value and has proved to be more resilient to systemic risks. As markets around the world have plunged in the last few weeks, one of the main losers from the economic consequences of the pandemic has been fossil fuel-intensive companies. In stark contrast, sustainable infrastructure has demonstrated stronger resilience in these challenging times.
Once viewed with suspicion, funds with a sustainability mandate have proved their mettle, and now routinely outperform other funds. This could be the prompt that investors have been waiting for — a phenomenon that could see greater prevalence toward sustainable funds.