PERSPECTIVE3-5 min to read

A new social contract - sustainable investing during the Covid-19 crisis

The coronavirus crisis has seen some high profile companies step up to offer their support. We consider what this means for sustainable investing, and the possibility of a new social contract.



Katherine Davidson
Portfolio Manager and Sustainability Specialist
Scott MacLennan
Portfolio Manager

Sustainable investing has grown exponentially in recent years. In the US, net flows into sustainable funds reached $20.6 billion in 2019, more than four times the previous annual record which was set in 2018. Even so, there has long been a nervousness – among clients and, if we’re honest, even portfolio managers – about how the space would behave in a downturn.

In terms of performance, we have long argued that sustainable companies should have lower declines due to lower incidence of controversies and occupational mishaps; greater loyalty from customers, employees and even shareholders; and often more conservative balance sheets.

There’s also a question of whether asset owners will continue to demand sustainable/ESG (environmental, social, governance) funds in a downturn, or whether ethical investing was a luxury that could only be afforded in an bull market.

The current crisis provides an unfortunate opportunity to test these hypotheses.

Thus far, the evidence seems encouraging. As much as we are sceptical of passive ESG funds, it is interesting to see that the MSCI ESG Leaders indices have outperformed their mainstream counterparts in most geographies, albeit modestly in most instances. The UK is the most striking example with the FTSE 100 ESG Leaders index returning -27.3% year-to-date compared to -33.7% for the FTSE 100 index (source: BofAML European Equity Strategy, Bloomberg, as at 24 March 2020). The MSCI ESG Leaders indices target companies that have the highest ESG rated performance in each sector of the parent index.

Research by BofAML also finds that the top 20% of ESG-ranked stocks outperformed the US market by over five percentage points during the recent sell-off (see the blue line on the chart below). Interestingly, this was not just down to a sector bias (ESG stocks are less likely to be in energy sector, and more likely to be consumer staples/healthcare), but persists on a sector-adjusted basis (see green line).


This is partly because ESG leaders have so far seen smaller earnings per share (EPS) cuts than ESG laggards. This is shown in the chart below which looks at cuts to earnings per share estimates for US companies.


ESG assets also appear to have been more resilient in terms of investment flows. The chart below shows how ESG exchange traded funds had lower outflows in the last month and are still net positive year-to-date compared to record outflows from equities overall.


Moreover, it seems to us that this crisis has actually increased the visibility and perceived importance of sustainable business practices. Amid terrifying headlines and unprecedented disruption to our day-to-day lives, we are all rethinking our personal values and priorities.

Treatment of stakeholders is headline news

Similarly, the role of business in wider society and treatment of stakeholders have become topics of daily conversation. As the Chairman of the World Economic Forum wrote in the Financial Times, “The Covid-19 crisis is a litmus test that shows who has been ‘swimming naked’ while endorsing stakeholder capitalism.”

Companies’ treatment of their customers, employees and suppliers is under greater scrutiny than ever before. Beyond government pressure to protect jobs, close attention is being paid to how companies treat their staff in these tumultuous times.

It is reasonable to expect that companies that attract positive recognition will see greater loyalty from their staff and be more able to attract new recruits after the crisis. Conversely, staff may leave employers that they felt abandoned them in the crisis (once they can afford to). Workers may be less inclined to trade off flexibility for security, and be looking for employers that offer good non-statutory benefits rather than just the highest salary.

And every employee is also a consumer, so we could also see market share shift to companies that are deemed to have ‘done their bit’ during the crisis. Companies that have good relationships and visibility in their supplier base will be more able to manage their working capital and minimise disruption to production.

More broadly, we have seen the public and private sector join forces to protect their communities, with governments relying on companies to enforce guidance on stockpiling, social distancing etc., and making use of private sector capabilities and assets to meet the population’s needs.

In return, governments and regulators are providing relief to the private sector, for example by subsidising wages or providing tax relief. We are seeing the emergence of a new ‘social contract’, which we hope could open a new phase in public-private relations after the fractious, anti-capitalist rhetoric of recent years.

JUST Capital has been tracking the response of the US’s top 100 employers to the crisis (see chart below): only 36% have paid sick leave and 28% have guaranteed continued pay for hourly workers. At the same time, only 6% have committed to executive pay cuts, and we have even seen companies awarding huge bonuses to executives while lobbying for state support. Laggards are increasingly being named and shamed in the press, and may not have access to government relief funds.


Our CEO has spoken out about the importance of the social contract, and we will be engaging with our holdings to ensure they are behaving appropriately. We also recognise that shareholders have to share the pain – in the form of falling share prices, dividend cuts, and equity raises. As long-term investors, we are committed to supporting companies where we believe growth and profits are sustainable beyond the crisis.

Below, we provide some good examples of companies taking care of their stakeholders and helping to tackle the crisis. These are noteworthy partly because they are not (yet) the norm.

What are companies doing to help tackle the crisis?

Mannat Chopra, Sustainability Analyst, European Equities and Scott MacLennan, Fund Manager, European Equities highlight examples in Europe

  • LVMH have repurposed their cosmetic factories in France to produce hand sanitisers, which they are giving away for free to French hospitals and local authorities. The switch was a relatively easy one for the French luxury conglomerate as their factories are already stocked with purified water, ethanol, and glycerine – the three primary ingredients in hand sanitiser.
  • The pharmaceutical company Novartis will donate 130 million doses of hydroxychloroquine, an anti-malarial drug that is being tested as a potential treatment for coronavirus. Novartis have also vocalised their desire to work with the World Health Organization to determine the best distribution channels to ensure broad access to patients most in need of this medicine globally.
  • In a time where access to medical advice is essential, Vodafone are providing all UK mobile customers free access to NHS websites such as and Customers can access sites without using up their data allowance, irrespective of their payment plan. On top of this, Vodafone have added extra capacity to their broadband and mobile networks to put them in the best possible position to cope with any extra demand as more people work from home.

Emerging Markets – Jonathan Fletcher, Analyst, Emerging Market Equities

  • Alibaba has supported a range of stakeholders through Covid-19. They have provided measures to help small and medium-sized enterprises in China including waiving fees, offering low and interest-free loans and subsidising logistics for deliveries. The company has also provided remote working digital tools to help businesses adapt to the disruption. Furthermore, outside of China they have also provided AI technology and cloud-based services for free to researchers and medical practitioners in order to aid epidemic prediction, fast-track diagnosis and drug development related to the virus.   
  • A number of other companies in China have provided support to those more directly in need during the pandemic. Examples include donations of over $100 million of dairy products by China Mengniu, a $200 million relief support fund by Tencent and logistics services by SF Holdings to ship over 3000 tons of emergency supplies to the Wuhan area. The support in the battle against the virus has been significant and varied in nature. 

Global – Katherine Davidson, Portfolio Manager, Global & International Equities

  • Here in the UK, the most visible example has been supermarkets, who have done their best to enforce the government’s guidance on social distancing (my local Waitrose is operating a ‘one-in-one-out’ policy and has taped out 2 metre marks for queueing outside) to protect customers and staff. The companies will have seen a financial benefit from stockpiling in the last month, but are acting in the national interest by rationing some items and limiting access to their stores to the elderly and healthcare workers for the first hour of opening.
  • As many stuck at home will be aware, Netflix and YouTube have agreed to reduce their streaming quality in Europe for at least a month, responding to calls from EU officials to relieve pressure on broadband networks.
  • Microsoft, ranked first in JUST Capital’s ranking, is a collaborator on Johns Hopkins’ coronavirus tracker, and is providing teachers with access and training for its Teams program to support them in teaching remotely.
  • Shipping company Maersk is offering its ships and cargo space to transport emergency supplies, including maintaining or creating shipping routes that are not commercially viable.
  • Amazon’s infrastructure has become increasingly important as citizens are confined to their homes and supermarket shelves are stripped bare. The company has responded by prioritising essential items in its warehouses. However, as usual, there are frictions around Amazon’s labour management. Employees in some countries have protested that by not closing warehouses the company is not taking sufficient measures to protect them from infection. But the company is treading a fine line in balancing the needs of customers and staff given the surge in demand. The company has said they are adding 100,000 new staff and have increased salaries by $2/hour for all new and existing staff.

The above is by no means an exhaustive list of companies that are doing their bit to support society through this crisis, but gives a flavour of how firms in different industries and geographies are responding. This current emergency throws a spotlight on these types of actions.

As investors, our job remains the same: we focus on identifying those companies that have the best potential for sustainable growth over the long term, underpinned by strong relationships with their stakeholders. We have long argued that ‘companies do not operate in a vacuum’ – never has this felt more true.


Katherine Davidson
Portfolio Manager and Sustainability Specialist
Scott MacLennan
Portfolio Manager


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