As we suspended business as usual during the pandemic what’s impossible to ignore is that “responsible investment strategies, that is, those that more actively factor in social and environmental risks in their decisions, outperformed the broader market during this downturn, and not for the first time. “


Initial Reaction: For investment teams responsible for the retirement savings of millions of individuals (us) around the world, the initial reaction to governments suspending business as usual in the interest of public health was:  how are markets reacting? How much could share prices fall? How long might this last? How can we time our buying /selling?

We knew to leave those teams to focus on those immediate questions. All other projects and topics had to wait. Of course, moving our work life home couldn’t wait. Thousands of us somehow quickly navigated that newly merged existence, surprising ourselves and management globally.

The initial market fall was significant, varying by industry and country, and the ups and downs are far from done.

But I can’t miss the opportunity to note that “responsible investment” strategies, that is, those that more actively factor in social and environmental risks in their decisions, outperformed the broader market during this downturn, and not for the first time. 

Considered Reaction

When the initial market rebounds came, thanks to various government policy supports, there was space again to look beyond the immediate.

This is important for investors and their beneficiaries with multi-year and decade timeframes who invest in companies, real estate and infrastructure all over the world. Particularly so as they are all exposed to climate change.

The risks and opportunities in transitioning to a low-carbon economy and the physical damages from the increase in temperature (the magnitude of the latter depends on the speed of the former) don’t stop during a pandemic.

The well-established investor networks on responsible investment and climate change were quick to hold their pre COVID-19 ground and reinforce their commitment to climate action.

Fiona Reynolds, chief executive officer for the global PRI (Principles for Responsible Investment) with its 3000 signatories, issued the first of many communications back in March calling for us to “embrace the opportunity for change” to “make the global financial system fit for purpose”.

“PRI signatories should be supporting sustainable companies through this crisis – in the interests of public health and long-term economic performance – even if that limits short-term returns.”

The Investor Agenda, a global collaboration of investor groups on climate change, issued a public statement in early May to all governments calling for A Sustainable Recovery from COVID-19. This included five recommendations to: prioritise human relief and job creation; uphold the Paris Agreement; ensure COVID-19 government support addresses climate risk; prioritise climate resiliency and net zero emission solutions; and embed investor participation in recovery planning.

Press Repeat or a regenerative recovery?

The COVID-19 pandemic highlights how significant and wide-reaching systemic risk impacts can be. An infectious disease (a health issue), likely rooted in human interactions with wildlife (an environmental issue), led to economic issues, which in turn have societal issues creating new health issues. And so it continues…as illustrated in The World Economic Forum’s Global Risks Report 2020.

Moving from linear to systems thinking is easier said than modelled.

Too many investors and national governments still see exponential growth as the goal, with our environment and people inconvenient “externalities” to that.

It’s far from the Doughnut Economics and circular economy thinking now inspiring sustainable design for cities and companies, which our economic and investment models should draw from.

As investors look to governments to help “build back better” (not prop up ‘gas-led recoveries’), there is growing recognition that our economy is as healthy as our poorest link, and growing inequality has left us all vulnerable.

As we remember what and who are actually essential and valuable (stakeholders not shareholders), questions must be asked of companies on the taxes and wages paid, and how they contribute to that inequality, particularly where companies are demanding taxpayer bailouts.

Investors are also ramping up the rhetoric on “net-zero emissions by 2050” commitments, with the Net Zero Asset Alliance and the Science-based Targets initiative on the financial sector actively working on the methodology to set metrics and targets over the next decade.

The regional investor groups on climate change are also agreeing guidance to support members on transition action plans and Mercer, as a major global investment consultant, can now help investors with a transition plan embedded in strategy and portfolio decisions, grounded in calculated emissions reductions.

There is optimism that those responsible for investing our retirement savings see this as an opportunity to regenerate and create the systemic, low-carbon transition and essential social outcomes we need. Where the financial system is connected to purposeful, real world impacts.

Ultimately it is up to us all – investors, companies, governments, individuals – to decide what goals we set and the road we’ll take to achieve them. Perhaps a global pandemic will help us to finally focus the mind on the benefits of coordinated action sooner rather than later – and be bold in the action we choose to take.

Jillian Reid, senior responsible investment specialist at Mercer was part of the City of Sydney’s s C40 Women4Climate Mentorship Program in 2019, where she worked on two program projects: improving how we communicate  the climate change connections with retirement funds; and how these funds can help reduce emissions in our built environment. Her mentor was Tina Perinotto, managing editor and publisher of The Fifth Estate.

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