The Covid-19 coronavirus pandemic has highlighted how ESG is not simply a convenient label to sell financial products, but a set of real issues that must be considered when assessing the merits of an investment decision. How a company – and individuals for that matter – respond in a crisis tells you a lot about their motivation and if they have a moral compass that guides their purpose.
First and foremost, the pandemic is a human crisis and, understandably, people have paid close attention to how companies have responded. The majority have responded with a high level of empathy and compassion; and those that haven’t have been on the receiving end of public opprobrium through the press and social media, potentially permanently impairing their reputation.
Perhaps the time has come to recognise that the age of the primacy of the shareholder that Milton Friedman ushered in almost 50 years ago is now well past its sell-by date. In the long term this could mean a sea-change in how investors view their holdings. The economic shock has exposed those firms that have traded resiliency for efficiency, normally through the use of financial engineering to support short-term profitability.
Instead of arguing why environmental, social and governance considerations should be used when investing, it’s now the case of asking why wouldn’t you think about these issues? Not to seriously integrate ESG into the analysis of a company is to have an incomplete picture of the opportunities and risks for the enterprise.
Andrew Parry, head of sustainable investment, Newton Investment Management.