I believe that socially responsible investment (SRI) has the potential to shape financial markets and prepare companies for future challenges after the pandemic. Many companies, including Ford and Tesla, responded to the crisis by modifying their manufacturing to provide countries with medical appliances (Broughton & Sardon, 2020). It is a sign for investors that some private enterprises can address social challenges while still sustaining the business. Moreover, people start realizing that companies have the human and financial resources to come up with solutions faster than governmental institutions. In my opinion, the market value of the brand can be undermined by risks related to environmental and social issues. The consequences of the coronavirus pandemic will force companies all over the globe to include ESG factors in reports. The COVID-19 pandemic will energize SRI as investors will select those corporate players that have strategies to adapt to the changing settings.
I assume financial advisers and venture capitalists will reconsider the way they assess companies’ portfolios. However, according to a recent survey, 37% of investors in the U.S. are not aware of SRI and environmental, social, and governance (ESG) priorities (Norton, 2020). Sustainable investment is often not discussed among professionals and does not receive enough attention in the media. The consequences of the coronavirus pandemic will force companies all over the globe to include ESG factors in reports. Environmental and social challenges, like human-caused natural disasters and the spread of viruses, represent financial risks. Companies will be asked to report on related performance in a consistent way. The current situation has revealed how the corporate sector affects the well-being of communities, families, and individuals.
I reckon that ESG priorities will have an influence on financial analysts in the process of calculating return on investment. Even though ESG factors are hard to define, they refer to broader socio-economic goals that correspond with a company’s development strategy. The global market of ESG-related investment is already quite big and will continue to grow. In 2018, it amounted to $ 30 trillion, demonstrating significant growth in Europe, the U.S., and Japan (Stevens, 2019). Hedge funds continue to add ESG factors to their core plans because they will help choose innovative corporations to invest in. This shift of interest is explained by growing concerns about the social and environmental impacts of various economic sectors. Governments and consumers will become even more demanding and conscious as they try to revise priorities and values.
The pandemic has shown that employees’ treatment, including paid sick leave and other social benefits, is an essential ESG factor. Since venture capitalists are interested in long-term performance, they want to know how corporations support their workforce. Warehouse workers of Amazon and its subsidiary Wholefoods protest to call for additional payment and protection measures during the pandemic (Lerman & Tiku, 2020). Corporate giants neglect employees’ essential rights to have access to adequate protective equipment. To my mind, this inaction undermines the image of the company and should be taken seriously by shareholders and potential investors.
Hence, the pandemic is an opportunity to question existing social responsibility policies and request improvement. Businesses should go further and initiate emotional support programs and unique benefits for those who need individual guidance. Finally, I believe that financial analysts and hedge fund owners should acquire skills to create a unified reporting framework for enterprises. It is necessary to determine which ESG indicators are relevant in every given economic sector. Once there is a structured approach, companies will integrate these factors into their portfolio.
References
- Broughton, K., & Sardon, M. (2020). Coronavirus pandemic could elevate ESG factors. The Wall Street Journal. Web.
- Lerman, R., & Tiku, N. (2020). Amazon, Instacart workers launch May Day strike to protest treatment during the coronavirus pandemic. The Washington Post. Web.
- Norton, L. (2020). Most U.S. investors haven’t heard of sustainable investing. The coronavirus pandemic could change that. Barron’s. Web.
- Stevens, P. (2019). Your complete guide to investing with a conscience, a $30 trillion market just getting started. CNBC. Web.