Coronavirus and the environment
The immediate social and economic impacts of the coronavirus have been very visible across the world. However, it may take time for the non-economic and non-business issues to be heard – and this may happen only after the COVID-19 spotlight fades.
The environmental, social and governance (ESG) issues do not go away, however. Some of the broader consequences of the pandemic will be good for society, others bad. In time, businesses will have to rethink the true level of resilience to potential shocks – virus, climate or otherwise.
The massive reduction in air travel has been positive for the climate as significantly less greenhouse gases are emitted in the short term. Regulators may even stop requiring airlines to fly near-empty planes to retain take-off and landing slots.
The reduction in air travel has been positive for the climate
But there may also be a rethink about where we obtain fresh produce: less food flown in from abroad may encourage more local sourcing. And this year’s disruption of supply chains may also make firms seek local alternatives.
More meetings – even conferences – taking place virtually will also mean less travel, which is the largest slice of our carbon footprint.
Working from home will reduce commuting, thus lowering emissions and local air-pollution – especially from road traffic – but any savings in heating or cooling workplaces with fewer occupants will probably be more than offset by the extra energy used to heat or cool homes.
And an increase in online grocery ordering has mixed outcomes too: the delivery-van emissions are probably offset by fewer personal shopping trips but it could see more boxes and bags used.
The slowdown in industrial output as COVID spread meant factories consumed less energy and emitted reduced greenhouse gases, but that is temporary. When production resumes, emissions are likely to spike back up as energy demand grows and factories try to catch up on lost output.
Indeed, economic stimulus from governments may focus on short-term revival by helping carbon-intensive industries. Resources could be directed away from long-term issues such as climate change as political attention concentrates on preventing the spread of the virus and treating the affected.
That could delay climate-related action, policy or even negotiations, including the political will to strengthen climate pledges in 2020.
COVID may also result in a review of the resilience of global healthcare. A quarter of US workers lack access to paid sick leave. Companies and regulators may look at how benefits are included in the contracts of service-economy employees or how gig-economy workers are paid.
But after so many workers have had to self-quarantine, more employers may encourage flexible working. And the increase in people having to conduct daily tasks online could lead to functionality and digital access improving over time. For now, however, those without digital access may suffer.
There are implications for corporate governance from the coronavirus too. As companies are disrupted, balance sheets may become stretched but delayed audits could lead to incomplete reports, missed filing deadlines or late announcements. Write-downs of tangible assets, investments or goodwill may affect future earnings and dividends too.
So, when the COVID threat lessens, questions will emerge over how resilient businesses really are to future shocks, including ESG matters.
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Wai-Shin Chan, CFA
Equities: Stock ratings and basis for financial analysis
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MCI (P) 077/12/2019, MCI (P) 016/02/2020
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