The unprecedented challenge of the COVID-19 pandemic means that many investors are now being forced to confront emerging risks like climate change.
“Hopefully this pandemic will shine a light on the importance of identifying and mitigating the risks of other potential, high-impact global events triggered by forces like climate change,” Ms Turner said. “Even when we don’t know exactly when or how they will hit, we need to accept that they are likely to happen and plan appropriately.”
Ms Turner believes that issues that have been exacerbated by the pandemic, including modern slavery and governance, now require “immediate attention” from investors. Others, including climate change and biodiversity loss, are “critical considerations” as the global financial system emerges from the crisis.
“We have seen temporary benefits, but it will be interesting to see whether there is a rush to get ‘back to normal’ as we emerge from this crisis, whatever the cost to the environment,” Ms Turner said. “Or will we see an acceptance that our old definition of ‘normal’ is out of date, and that we should try to rebuild our society and economy in a more sustainable way?”
Research has already shown that companies with high ESG ratings outperformed those with lower ratings, with COVID-19 serving as the first “acid test” of ESG investment theory. Companies with good sustainability characteristics typically have better management teams and so outperform the market.
“Even before the start of the COVID-19 pandemic, ESG investments often outperformed the market and had lower volatility over the long run,” said deVere CEO Nigel Green. “What is perhaps more impressive is that those investments with robust ESG credentials are still typically continuing to outperform throughout the coronavirus-triggered stock market crashes where major indices were extremely volatile, with some plummeting 20 per cent.”
“The collective wake-up call delivered by COVID-19 plus the search for profits in these highly unusual times are catapulting responsible, sustainable and impactful investing into the mainstream.”
