Coronavirus’s Impact On Sustainability — What To Expect

Coronavirus face mask with world map on green background
Will the coronavirus pandemic turbocharge or cripple sustainability?

As it touches every aspect of life and business, already the coronavirus is impacting sustainability. The big question now: what can we expect in the long-term?

Among the myriad uncertainties of the Covid-19 pandemic, there is one sure thing: The natural environment has been a beneficiary of economic shutdowns and human lockdowns.

With virtually no cars on the road, nor factories belching smoke, the skies over New Delhi and Shanghai have turned from brown to blue.

Atmospheric pollution has diminished from the near-disappearance of air traffic.

Carbon emissions have shrunk dramatically as industrial production plummets.

Now, we all must ask whether these benefits will be temporary. Around the world, governments are looking at how to restore normal economic activity as soon as possible without risking a fresh wave of infections. This process is already underway in China, although the country’s economy remains constrained by the slump in demand for goods and commodities elsewhere in the world.

Indeed, some countries have announced or are considering measures that would, at least temporarily, lower environmental standards or defer efforts to curb carbon emissions. Their rationale? The need to re-ignite economic activity and preserve jobs is currently more pressing than protection of the natural environment or restraining climate change.

They also argue — not without justification — that poverty and deprivation also impact human health, physical and mental.

Don’t be fooled

The choice, however, is a false one, according to David Boyd, United Nations special rapporteur on human rights and the environment. Such policy decisions, he warns, “are irrational, irresponsible, and jeopardise the rights of vulnerable people. [They] are likely to result in accelerated deterioration of the environment and have negative impacts on a wide range of human rights, including the rights to life, health, water, culture, and food, as well as the right to live in a healthy environment.”

Boyd argues the coronavirus outbreak itself has underlined the importance of a safe, clean and sustainable environment. “People living in areas that have experienced higher levels of air pollution face increased risk of premature death from Covid-19,” he says. “Access to clean water is essential in preventing people from contracting and spreading the virus.”

Epidemiologists also note that the majority of new infectious diseases affecting human beings — including Ebola and SARS, as well as Covid-19 — have been transmitted from animals to humans, and argue that they’re becoming more common as human encroachment on animals’ habitat brings species into closer and more frequent contact that facilitate the spread and evolution of disease.

It’s far from certain that current arguments in favour of sustainability will prevail over the drive to restore economic activity and prosperity (and to relieve governments of the financial responsibility for providing their citizens with the necessities of life and preventing companies from collapse).

Is Covid-19 proving that sustainability is more profitable?

However, the impact of Covid-19 has added weight to arguments that sustainability-focused investment often performs better than portfolios that ignore environmental, social responsibility and governance factors (ESG). A key claim of ESG advocates is that the risk of unforeseen environment-related events is greater than commonly believed.

According to financial analytics provider Morningstar, during March investment funds that incorporate ESG factors into their strategy outperformed comparable vehicles that do not. Share prices of the latter crashed around the world after governments imposed lockdowns and closed many businesses to prevent the spread of the infection.

Morningstar found that ESG-filtered or sustainability-focused, Europe-domiciled actively managed funds performed better in three investment categories — although they did worse in a fourth — and all categories of ESG and sustainable exchange-trade funds outperformed non-ESG peers.

It may be that March, a month that saw extreme market volatility, wasn’t particularly representative of ‘normal’ trading conditions. ESG funds generally avoid sectors such as the airline industry and oil and gas companies, which were especially hard hit by the shutdown of international travel and the evaporation of energy demand.

However, Morningstar also found that two-thirds of sustainable funds performed better than an average of all comparable funds, sustainable and non-sustainable, over the first quarter as a whole.

Caring about stakeholders

More fundamental factors may be at play, argues Hortense Bioy, Morningstar’s director of passive strategies and sustainability research. “Companies that score high on ESG tend to be large, well-run businesses that treat their stakeholders well, address environmental challenges, enjoy more conservative balance sheets, and have lower levels of controversies,” she says. “Many such companies tend to be more resilient during market downturns.”

These arguments would suggest that in the future, discerning investors will pay greater attention to ESG factors and that companies failing to meet the criteria or to demonstrate a move toward more sustainable business models will find it harder and more expensive — and perhaps eventually impossible — to finance themselves.

Meanwhile, there are indications that some of the changes in human habits and practices forced by the pandemic and lockdowns may have a long-lasting effect.

Companies have been obliged to accommodate the reality of teleworking, and both they and their employees may continue to embrace benefits such as the absence of commuting, reduced workspace costs and the huge savings offered by teleconferencing over business travel.

Coronavirus could usher end of low-cost flying’s golden age

Already stigmatised by climate activists, the airline industry may be transformed by Covid-19 and the golden age of low-cost air travel abruptly brought to an end. Analysts see a wide range of possible effects, including the largest aircraft grounded permanently, many carriers bankrupt or their numbers drastically cut, and far higher air fares.

At a time when renewable energy is starting to compete with fossil fuels on cost, the collapse of oil prices may shake up the industry, for example, with many shale oil ‘frackers’ and other high-cost producers driven out of the market — although the lowest oil prices in nearly two decades don’t immediately encourage the transition to renewables at a time of economic constraints.

Still, nothing can be taken for granted. Worldwide carbon emissions shrank by 1.3% as a result of the global financial crisis of 2008-09, an event that also was predicted to trigger a fundamental economic shake-up that didn’t materialise — only to rebound in 2010.

But maybe, just maybe, this time really is different.

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