Capital investment will put greater emphasis on ESG criteria Capital investment will put greater emphasis on ESG criteria Capital investment will put greater emphasis on ESG criteria

• Pre-coronavirus, and in the aftermath of some extreme global climate events, we were seeing ESG investing surge as the environment and climate change became top concerns for society, industry and government.
• Emissions have dropped due to reduced economic and social activity – but this is only temporary.
• Satellite imagery has shown how air quality has improved drastically in big cities across China as well as urban centres throughout Europe, US and Canada.
• So far, ESG investments appear to be at least, if not more, resilient to the economic consequences of coronavirus. 
• Society is having a period to reflect on what really matters to them.

While dealing with a health and economic emergency, focus on climate change has been put on the backburner by some. The crisis has had a profound negative impact for many industries and businesses and those that do survive will be under significant pressure to stay open. Customer re-engagement, cash flow management and servicing debt will be top priorities. But in the medium-to-long term, climate change and sustainability will return to be key priorities for individuals and businesses.

The speed at which this crisis appeared has required many to innovate quickly. Some of these innovations have forced people to do more with less driven by financial necessity. On the other hand, others have shown that better financial outcomes are consistent with better environmental and social outcomes. Post coronavirus, both approaches are likely to accelerate new investments in ESG. However, affordability challenges from a weak economy and old invested capital will slow down the transformation to a full ESG world.

Initial indications from the capital markets show that ESG investments are performing at least as well as mainstream funds during the crisis and new capital is continuing to flow into them. The search for long-term, resilient businesses that are not susceptible to changes in social expectations, new disruptive technologies or future regulatory changes are at a premium and ESG criteria is, and will continue to be, a competitive and differentiating factor in accessing capital in the post-coronavirus world.

While the current crisis is impacting many lives and livelihoods, the net outcomes of climate change will be far worse than what we’re currently experiencing, even under some of our desired scenarios such as a ‘two degree’ world. The pain of environmental degradation and climate change will accumulate over years and decades, rather than weeks and months.

• Will the pain that we are feeling today trigger us to act more decisively to tackle climate change for the long-term sustainability of our planet?

• To ensure long-term stability of businesses that have been heavily impacted by the crisis, will governments require social dividends from bail out money through reduced emissions or greater environmental resilience? 
• Even where governments do not provide new capital, they may seek to impose new regulations after a crisis. Will we see new regulations and targets over our scarce resources such as land, food and energy?

These themes were selected by comparing emerging trends before and during the COVID-19 pandemic. Within each theme, we engaged KPMG professionals to develop hypotheses on what a post-COVID-19 world might look like.