Sustainable investing – the integration of environmental, social and governance (ESG) factors into analysis and decision making – has seen a remarkable rise over the past couple of years. Starting from modest levels 15 years ago, it is now estimated at over US$ 30 trillion. So far, the outbreak of the Covid-19 virus has not stopped the growth of ESG investing, which has seen a steady increase in inflows and better-than-average returns since the start of the pandemic. In a recent research paper, DWS argues that the pandemic is advancing the strategic case for sustainable investment. The question now arises whether ESG investing and its corporate equivalent, the integration of sustainability into business models, will become the new normal or whether the pandemic will eventually slow them down or derail them.
The pandemic is far from over. Although we can only speculate about its long-term political, economic, and social consequences, we can already assume that it will change the framework conditions for markets for years to come. It is unclear which lessons politicians and citizens will learn from the pandemic. Some of the most pressing questions are:
Will the pandemic fuel strategic rivalries and lead to a messy and fragmented world with higher risks of hostility and conflict, or will big powers rediscover the benefits of rule-based economic integration as the best basis for peaceful coexistence and prosperity? Will the desire to build more resilient markets supercharge economic nationalism and protectionism and lead to massive efficiency losses? Will the economic setback in emerging and developing markets lead to unrest and humanitarian crisis situations, as poverty and hunger may stage a massive comeback, and will developed countries show compassion and solidarity or will they turn a blind eye? Will the massive government funding now mobilized to counter the economic fallout of the pandemic fuel the climate crisis, or will it be employed to tackle both crises at the same time and thus result in healthier, cleaner and more resilient economies? Will social norms and consumer preferences be changed by the pandemic?