Some are trying nevertheless, including making predictions that everything will change and nothing will ever be the same again.
Can this be so? Could we go from headstrong capitalism and globalisation to a transformed, brighter future tomorrow, with virtuous economies and solidarity between peoples?
Remember that Talleyrand, the 18th century French diplomat and politician wrote that “everything that is exaggerated is insignificant”. And so it seems.
When grappling for solutions to vital problems and coping with existential anxieties that darken lives, over simplistic solutions are pointless.
Key points
- It is impossible to predict how the world will change post-Covid-19
- Business practices have changed dramatically over the past five years
- Carbon emissions have dropped by a fifth in the EU since 1990
History, now and again, is made through violent change. But most of the time it builds through many seemingly minor, subtle changes.
Similarly for anyone involved in investment, their job is to generate wealth through the allocation, over time, of capital for the benefit of the owners of that capital, and for society as a whole.
It is a long process needing patience, careful analysis and vision.
This means being pragmatic and building scenarios guided by clear-headed assessment of facts rather than on lurid predictions. It is nonsensical to claim that our economies can change dramatically overnight or even over a few years.
Expecting them to do so would require massive social, political and financial upheaval.
Changing practices
More dangerously, fixating on the nirvana of short-term economic transformation means ignoring the major shift in corporate behaviour that is already underway.
Remember the way companies judged their priorities just five years ago.
Business thinking has changed fundamentally. Then the focus was almost exclusively on profits, growth and financial returns.
Now it has become purpose, financial resilience and responsibility – doing the right thing. And the process of change continues.
The shock of the past four months has supercharged an effect that was already visible: that companies taking care of their stakeholders benefit from this commitment particularly when, as now, social considerations become paramount.
The businesses doing relatively better during the crisis are those that have shown superior product, health and safety scores, and employment ratings. Taking care of stakeholders is an efficient way to avoid many risks.
Active management sometimes means leaving the parade and running into burning buildingsThe reality of numbers is now meeting common sense. Since the beginning of this pandemic, funds investing in companies with strong environmental, social and governance policies have outperformed. ESG could now be considered as a ‘safe haven’, just like gold has been for ages.
So far, so good. But truly identifying all the companies that have the qualities and mindset to lead to a better form of capitalism is not as straightforward as, well, ESG.
As we emerge from what will plainly be a protracted virus-induced downturn, those investors who have thought through the ESG ramifications will be rewarded. But it may not seem that way at the time.
Reducing impact
Active management sometimes means leaving the parade and running into burning buildings.
As long as managers are prepared to see the big picture, and where necessary move away from the comfortable consensus, they will fuel the accelerating change in corporate behaviour.
Yes, everything is still far from being perfect and the road ahead is very long and very difficult.
But money talks. Managers can use their selectivity by requiring corporate managements to accelerate their rate of change and by nurturing the new technologies and industries we will need in a less impactful and more inclusive world.
Look at what has been achieved already. Data gathered by the UN Framework Convention on Climate Change shows EU states cut their greenhouse gas emissions by 2.1 per cent in 2018 compared to 2017.
While greenhouse gas emissions in the EU were still 4.4bn tonnes of CO2 in 2018, that is 23.2 per cent lower than in 1990.
Over those 28 years, emissions per EU citizen fell from 12.2 tonnes CO2 per year to 8.9 tonnes CO2. The EU reduction without the UK was 20.7 per cent.
How was this done? Two-thirds of the 2018 emissions were in the power generation sector, with coal burning falling by nearly 50m tonnes and renewables increasing.
This data proves that lowering carbon emissions does not have to harm the economy. For each euro generated in the economy, the EU emitted 277g of CO2 in 2018, compared with 582g CO2 per euro in 1990.
The only way a company can grow in a sustainable manner is to treat all stakeholders fairly and by doing this, creating more future value and profit, effectively growing the revenue pie for all stakeholders.
We expect that pressure will remain on companies to keep dividend payouts and executive remuneration conservative, as they do their bit to help stakeholders and wider community actions.
There will never be a consensus on the exact application of ESG policies. To expect one is unrealistic and would require a rigidity that would not serve the cause as thinking and technology develops and changes.
Recent months have shown that sustainability and outperformance yet again can move ahead in tandem.
The challenge for the years ahead is to make certain that those with discretion and financial influence – everyone entrusted with managing another person’s savings – work to make sustainability and outperformance a life-long marriage.
Covid-19 has demonstrated the value of enlightened business management in cold hard cash. The lesson is there for us all to see.
Maxime Carmignac is managing director of Carmignac UK
