COVID crisis boosts responsible investing: market turmoil presents opportunity for green revolution

The coronavirus crisis has steered more investment capital into companies that emphasise responsibility and climate action.

“The times they are a-changing”, sang Bob Dylan in his iconic song.

The winds of change have been blowing through the investment market in the strongest storm since the 1930s recession. As a result, investors have begun to turn their attention to investment options with strong emphasis on environmental and social responsibility.

The change is clearly reflected in the results of a survey by Finance Finland (FFI): nearly 90% of the respondent companies stated they have integrated climate change considerations into their investment.

Carbon awakening of investors

Retail investors have also awakened to the serious issue of carbon emissions. According to a recent Norstat survey, half of them consider climate impact the most important criterion when choosing between investment options.

The changing behaviour of institutional and retail investors is good news for everyone in terms of climate change concern, because investment and financing decisions play a major role in reducing carbon dioxide emissions.

According to FFI’s Deputy Managing Director Esko Kivisaari this attitude change was foreseen but has occurred much faster than he anticipated.

“Profitability is no longer the sole gauge of adequate corporate social responsibility, if it ever was. Companies must be responsible in a sustainable way towards the environment, their personnel, and the society that surrounds them. Responsibility must also be a fixed part of the companies’ main strategy and daily operations – not just a side note on their website or annual report”, Kivisaari emphasises.

Companies that lack responsibility pose an investment risk

After the losses suffered due to the coronavirus crisis, many are now worried that investors will turn back to their “quick bucks” and less environmentally sustainable investments.

FFI’s Head of Sustainability Elina Kamppi does not believe this is going to happen. Companies with large carbon footprints and little concern over responsibility are already downright risky to invest in.

“Another misconception is that companies who emphasise sustainability would yield slower or weaker profit than others. This kind of difference has not been found in any comparisons made”, Kamppi points out.

The aftercare phase of the coronavirus crisis will be a challenge for the European Union. In many sectors and areas, markets will be redistributed, which opens a path to renewal.

“Financing and grant decisions should reflect this. The question is whether we are creating something new or propping up the old”, says Kivisaari, former member of the Commission’s high-level expert group.

The European financial sector has proposed that the EU should establish a public ESG data register to provide comparable information on sustainability.

“Sustainability aspects will be integrated into EU regulation on investments, for example. It will become one of the key criteria in areas such as corporate finance”, Kamppi says.

Responsible companies will be winners

The pandemic is taking many businesses and governments into economic distress. At the same time, there is growing concern that the entire issue of climate change and its mitigation may fall into the background.

Professor Minna Martikainen from the Hanken School of Economics says this fear is justified, because the prevention of climate change will require future investments, which in turn need funding. Here a harmonised set of ESG metrics would be a highly useful and important tool.

“Comparable indicators could be used to verify the company’s performance in a given area”, Martikainen says.

Investors as active owners could also use the indicators to set sustainability targets and conditions for financing.

“I believe that companies with high ESG ratings will be the ones to come out on top in the coming decades.”

The article was originally published in Finnish in the Sanoma Group’s ”Ideat” supplement.