How have sustainable companies performed during the Covid-19 crisis?
When we look at sustainable investing, we believe that companies who treat their stakeholders fairly will see better share price performance than those who do not.
There had been increasing market debate on this topic before the Covid-19 crisis struck. Some took the view that sustainable investing was simply a luxury to be indulged in during a bull market, rather than a way to generate above-market returns throughout the market cycle.
If sustainable investing has sometimes been perceived as a “luxury item” that investors could ignore in tougher economic times, data have suggested otherwise.
What are the post-crisis prospects for sustainable investing?
The severity of the Covid-19 crisis has shone a spotlight on the responses of governments, individuals, and corporates. Considerable media and consumer attention has focused on how companies are treating their stakeholders during this crisis.
For example, at the start of the outbreak, when lockdown guidance was less clear, companies asking employees to work without personal protection, or where social distancing was impossible, faced a backlash from the press and the public.
Fair treatment of employees also extends to those temporarily unable to work as usual. Not every job can be done from home, and some employees will be home-schooling their children as well as trying to do their jobs. Flexibility from employers will be crucial in retaining a motivated workforce post-crisis.
Companies are offering support along the value chain too, to suppliers or dealers. Extending payment terms for rent, utilities or goods received is an example of this.
Positive headlines have been made by companies transforming their production lines to make hand sanitiser, protective gowns or ventilators, instead of their usual cosmetics, clothing or cars. Other companies have made donations to support medical research or local communities.
The above examples suggest that many companies are taking seriously their responsibilities towards their stakeholders. And their responses are being noted. A study on brand trust carried out in March by Edelman found 65% of people said their future purchasing decisions would be influenced by how companies behave during this pandemic. That figure rose to 88% in China. Companies who treat their stakeholders fairly now may find themselves better placed to face the post-crisis future.
New and enduring social contract emerging
The current crisis is having far-reaching impacts and we think corporate and consumer behaviour is likely to be permanently changed as a result. This crisis is different from previous ones in that government support is not just targeted at the financial system, but as a social grant to help companies and employees through this difficult period. This may in turn create a new and enduring social contract between governments, regulators and the workforce that perhaps wasn’t there last time round.
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
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