Sustainable Finance in the wake of the economic volatility created by the COVID-19 pandemic

Sustainable Finance

IN BRIEF

In the wake of the economic volatility created by the COVID-19 pandemic, it is clear that environmental, social and governance (ESG) issues are material factors that businesses must manage appropriately. From immediate relief efforts to long-term recovery strategies, sustainable finance is a key part of the solution.

KEY STATISTICS

• The International Monetary Fund (IMF) forecasts that global GDP is set to decline by over 3 per cent this year, causing significant impacts on developing countries in particular.

• Sustainable investments have performed better in the downturn. An analysis by Morningstar showed that 24 out of 26 ESG index funds yielded higher returns than their non-ESG benchmarks in Q1 2020.

• The sustainable index funds focused on emerging markets performed even better. All three emerging-markets sustainable index funds in the study were able to outperform their benchmarks.

• A study by HSBC shows that companies that prioritize ESG and climate issues have seen their equities outperform their peers by up to 7 per cent since the beginning of the pandemic.

• Issuers have raised over US$ 100 billion in social and sustainable bonds in 2020, the majority of those to fund COVID-19 responses.

• The global market for responsible investment now stands at over $30 trillion.

CHALLENGES

• Millions of companies worldwide are in danger of being forced out of business, which has grave consequences for the global economy.

• Companies are now faced with a range of unprecedented challenges that require an even stronger focus on their impact on people and the planet.

• The annual investment gap to finance the Sustainable Development Goals (SDGs) — currently estimated at US$ 2.5 trillion in developing countries alone — is likely to grow.

• With corporate debt continuing to rise at unprecedented levels, the increased debt will make it more difficult to recover from the global recession caused by the COVID-19 crisis

ACTIONS

• Companies can work together with banks and investors to ensure business continuity and mitigate the impact of the pandemic on operations, especially where there is a risk of disruption of essential products and services.

• Banks can make available special credit lines and relax repayment terms for existing credit products for at-risk populations and businesses that deliver essential products and services.

• Explore financial instruments to fund commercial enterprises that support critical prevention and mitigation activities required by the crisis where appropriate. Insurance companies can ensure prompt and seamless payments of short-term disability and unemployment insurance benefits for employees and other workers affected by COVID-19.

• Maintain focus on long-term sustainability goals, seize opportunities and take advantage of new incentives to accelerate progress on areas such as climate transition

Thanks to the UN Global Compact - a are a voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals for this information

Learn more here: https://unglobalcompact.org/take-action/20th-anniversary-campaign/uniting-business-to-tackle-covid-19/sustainablefinance