18 August 2020
As the impacts of COVID-19 continue to be felt around the world, we sat down with the Macquarie Infrastructure and Real Assets (MIRA) Sustainability team to discuss how the pandemic might impact investors’ approach to ESG.
Joining us were:
CL: Our priority has been and continues to be the safety and wellbeing of our people, both within MIRA and across the portfolio of assets we manage around the world. For us, COVID-19 has underlined the importance of strong ESG principles and the need for sustainable and resilient solutions. ESG has been a focus for us for many years, and we were already increasing our focus on ESG before the COVID-19 crisis hit as we believe that sustainability and resilience are key to the long-term continuity of our operations.
CL: When we conducted our ESG client survey last year, we found that the focus on sustainability within the infrastructure sector was intensifying. Over 91 per cent of those surveyed planned to increase their focus on ESG over the coming five years. But, interestingly many investors also flagged concerns about their own lack of in-house ESG expertise and the quality of information available from managers1. I think this will change as the pandemic brings the practical implications of ESG during a crisis into sharp focus. We expect to see a greater level of engagement and clarity from our clients on this moving forward and I expect to see asset managers increase their focus as well.
MN: For investors who already cared about ESG, this is further validation for what they already believed. For anybody who didn’t appreciate the importance of considering non-financial factors in investment discussions or decisions I imagine this crisis may change their minds. The concept of resilience is often talked in the context of climate, but how resilient is a company in the face of a pandemic? These sorts of shock events may have been infrequent in the past but it is possible they may happen more often now as we are seeing with extreme weather events. And with global supply chains an event does not have to be local to have an impact on a business. This will likely prompt investors to focus more keenly on sustainability and resilience.
BP: ESG frameworks and policies are helpful in good times and bad. Fundamentally, I think the change will be investors looking at the companies they invest in and seeking to understand how each investment creates value and whether the whole package – the operations, the goods, and the consequences of those goods - are sustainable.
CL: I think it will change the conversation and, despite the obvious tragedy of this situation, there could be valuable lessons we learn from this experience. With global travel restrictions and social distancing measures currently in place, fewer people are flying, carbon emissions are down, and the planet is, in effect, catching its breath, and we should play close attention to what happens as this will offer interesting clues as to what may be possible. There are important lessons for us to learn here. In some ways COVID-19 has given us preview of climate’s worst impacts. Pandemics and climate change are both physical risks and they share many of the same attributes and catastrophic consequences. If we don’t act on climate change, we may continue to find ourselves experiencing this type of jarring disruption on a global scale again in the future.
BP: Many governments are starting to integrate sustainability principles into their COVID-19 responses. South Korea for example, has announced plans to aim for net-zero emissions alongside its economic response to the pandemic2 and there are growing calls for the European Green Deal to be used as a framework across the European Union to address both the short and long term economic impacts of the pandemic3. It is not a case of these countries seizing on one crisis to solve another, it is about learning from this experience and managing physical risks to avoid the type of disruption we are seeing with COVID-19.
MN: The global pandemic has sparked a renewed focus on the social dimensions of ESG and companies’ social responsibility. The S in ESG covers a broad range of factors including health and safety, employee relations and conditions, modern slavery, human rights and much more. These are all incredibly important factors and ones we need to continue to focus on in the future, especially as COVID-19 is disproportionally impacting those who are already most vulnerable.
CE: The social aspect needs to be carefully considered by governments and businesses now that they are looking to restart the economy. A successful restart will depend on prioritising people’s health, safety and wellbeing. For us in MIRA, as a manager of critical infrastructure and real assets around the world, our priority will continue to be the health and wellbeing of our people. We believe that continuing to focus on all aspects of ESG will place us in a better position to create real and lasting value for our clients and ultimately the long-term savings of the investors they represent.
CE: Yes, I think in the immediate term, some companies may deprioritize various aspects of ESG as they focus on survival. The UN is urging companies and nations to ‘build back better’ yet some governments have chosen to relax protection measures in response to the pandemic. In the US for example, the Environmental Protection Agency has temporarily relaxed pollution enforcement.
CL: COVID-19 has shown us the risks of not having clear ESG frameworks and the importance of collaboration and resilience. The pandemic has highlighted how interconnected our world has become whether that be through supply chains, technology or travel. I do believe that maintaining a level of connectivity and an open dialogue when it comes to ESG will be key to navigating a path forward. We have seen first-hand for example, the benefits of sharing information and best practices across our portfolio of assets in recent weeks. The companies that come back stronger will be the ones that focus on long-term sustainability and the resilience of the business. The financial sector has an important role to play in enabling post-COVID economic recovery, particularly long-term investors who can align recovery with sustainable outcomes.