When the World Economic Forum published its white paper in 2011, sustainable investing was touted as a way for financial markets to “accelerate the transition towards more sustainable business practices”. Over time, more and more investors embraced environmental, social and governance (ESG) factors as an important part of investment decisions. For many, this approach has appeared even more relevant as countries and industries emerge from the COVID-19 pandemic.
According to recent data, ESG funds around the world attracted US$185.3B of inflows during the first quarter of 2021, a 17% jump from the fourth quarter. In Canada, about 45% of investors were more likely to choose responsible investing than they were in 2019, a survey conducted in September 2020 showed.
Among other things, the pandemic has shined a light on considerations that previously received less attention, many of them social. “The COVID-19 crisis has exposed the significance of issues that were already there,” says Delaney Greig, Director, Sustainable Investing at Addenda Capital, an asset manager that considers ESG factors in its investment strategies. These social factors, for instance, can include diversity and inclusion, human rights and relations with local communities. The pandemic, she said, “helped make the financial materiality clearer.”
The year 2019 had already been marked by the debate around the carbon footprint of air transport and the impact of international tourism on the fight against climate change, a movement leading to the “shame of flying”. Topics such as this one were already coming to a head and had heightened awareness. For many, the pandemic helped to reveal the fragile nature of the economy. The sudden scarcity of various products, for instance, became a daily reminder of this vulnerability as the breakdown in supply chains showed that the system might not be as robust as once thought.
As countries and industries fight to restart battered economic sectors, many insist on the necessity of investing to “build back better”. But with this comes the need for better reporting by companies on how they are addressing ESG issues. As Ontario’s Capital Markets Modernization Taskforce wrote in its January 2021 final report: “greater ESG disclosure helps investors understand not only potential risks for the issuer but also the opportunities.”