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ESG weathering the storm of Covid-19

05 June 2020

Written by Sally Rochester Deloitte

Sally Rochester, Director at Deloitte in Guernsey, one of the fringe event supporters of Guernsey Sustainable Finance Week, says that island’s standing in green finance positions itself to make a strong contribution to post-pandemic economic recovery.

In the run-up to lockdown, Environmental, Social and Governance-principled investments built up a significant profile with investment managers and investors.

In 2019 there was a 56% increase in European sustainable funds and in 2019 US investors pumped $21 billion into socially responsible investment. While these numbers were fantastic to see, they were not getting anywhere near the estimated €300bn of finance needed to support the commitments made by governments around the world to the 2015 Paris Agreement. Earlier in the year, Deloitte in the US issued a publication estimating that more than half of all managed assets would have an ESG mandate by 2025, so the future was looking good for ESG. 

Then Covid struck.

So what impact has Covid had on the ESG story? In the first quarter of this year US sustainable funds saw record investment, gathering $10.5 billion. In Europe and the US, ESG-mandated funds have weathered the storm better than their conventional counterparts and losses suffered over the first quarter have been lower. ESG investors argue that this is the natural consequence of investing in companies that consider the society they operate in and their impact on the environment and have a strong focus on good governance.

Certainly the media, investment analysts and the public are focusing heavily on such matters as Covid unfolds. Media coverage of corporate responses to the crisis has scrutinised the role business has to play in supporting our communities as we move through. The FCA has been clear that banks are expected to support those suffering financially, the large professional services firms made the decision that it was not appropriate for them to avail themselves of the UK government’s furlough scheme, and corporates have leapt to support their people and local communities, showing the “social” in action.

For businesses to successfully navigate this crisis they need to be clear on their purpose and there is a strong expectation that such a purpose goes beyond simply making a return – it includes supporting their people, their communities and the world around them.

The case for ESG deepens as we look to the next phase of our journey. Governments around the world expect to inject huge amounts of capital into their economies to support their recovery, and many have made sustainability considerations a criteria for investment. So as we rebuild the economy, those businesses that sit on the right side of the ESG fence will feel the benefit of that investment.

A failure to consider long-term sustainability and contributions to decarbonisation, protection of local ecosystems and biodiversity could set us back by decades in achieving our Paris Agreement goals. I am delighted that the States of Guernsey has committed to considering sustainability principles as they shape the recovery package for our island.

Covid presents many opportunities for those committed to ESG principles, both on a personal and corporate level, and the benefits of an ESG approach have never been clearer than now. A recent survey of non-executive directors in Guernsey and Jersey told us that 74% of their boards were involved in some type of ESG investing, and this demonstrates that there is a huge opportunity for Guernsey to play an important role in a sustainable economic recovery.

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