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How the economic impact of coronavirus affects business sustainability

The Covid-19 pandemic is first and foremost a global health crisis, but its economic and social impacts are wide-ranging. Could the crisis mark a turning point that prompts urgent action on climate change and the broader sustainability agenda, asks Marco DeBenedictis, Head of Sustainable Finance.

The pandemic has brought about changes to the way we go about our lives, some of which have the potential to impact sustainability agendas in the short and long-term. They include, but are not limited to:

  1. the wider adoption of working from home and limited travel
  2. the growth of virtual connectivity
  3. the evolution of our cities and communities.

These changes will potentially transform the way we live and work, the way we do business and the way we invest.

Have short-term changes had a significant impact?

In short, yes, but at a cost. The International Energy Agency predicts that we’ll spend 6% less energy this year. For context, that is the equivalent of the entire annual demand of India, the world’s third largest consumer of energy. Global CO2 emissions, which were forecast to climb by 8% this year, are now down to levels we saw a decade ago.

These are striking figures, but if we are to achieve the decarbonisation ambitions by 2050, we must see a 5% reduction in greenhouse gases every year for the next 30 years. That clearly puts the scale of the challenge into context, particularly as the sustainability gains we’re seeing from an environmental perspective have been as a result of compromises in both personal and business terms, that have implications for areas such as sustainability of supply chains, cashflow and physical and mental wellbeing.

These changes will undoubtedly affect the way businesses act and the way we, as banks, support them. Customer behaviours have changed and differences in supply chain choices have resulted in material working capital swings and draining available cash and access to finance.

This has influenced corporates’ desire to invest in new capital projects – whether sustainable or not – as well as banks’ ability to raise finance for them.

Finding the balance between sustainability and commerciality

It’s a dilemma that goes to the heart of managing enterprises in both crisis and recovery, the perceived trade-off between profit and purpose.

In the pros column we’ve seen, amongst other things, a dramatic improvement in air quality as a result of lockdown, potentially preventing 11,000 deaths in Europe alone. Covid-19 has also shown managers in all sectors that, with the right infrastructure in place, we can do our jobs from almost anywhere and create a new sense of community.

However, we must also see that there have been costs. These have been highlighted in social and economic divides and compromised mental wellbeing.

If we’re going to use the post-pandemic world as a blueprint for a sustainable future, we must get out of the mindset where sustainability is a drag on a business’s bottom line.

"All actors should focus on reducing the costs and maximising the benefits, which will require the right policies and investments to ensure that we optimise in light of what we have learned."

As we shift from crisis to recovery, maintaining a focus on sustainability becomes even more challenging for businesses as balancing stakeholder needs can disrupt long-held plans.

The priority of repairing finances and trading out of crisis into profitability can skew decisions, but it is nonetheless, top priority. It could be said that transition to a less carbon-intensive future may be delayed or disrupted by the cost-attractiveness of carbon-intensive fuel – after all – in a free market everything has a price. Staff wellbeing may be adversely affected by the need to meet increased demand. It’s precisely at this point that businesses need to focus on the need for strong governance, robust supply chains and effective engagement with all stakeholders.

Ultimately, finding the right balance will be predicated on seeing sustainability for what it is: a benefit rather than cost. When it comes to decisions around diversifying supply chains, ramping up digitalisation with appropriate infrastructure or prioritising the mental health of employees these are all aligned to Environmental Social and Governance (ESG) strategies.

In the current market, investors are increasingly focusing on ESG credentials of their portfolio companies, and so for those companies that are looking to raise capital in private or capital markets, sustainability plans will be interrogated now and into the future.

Finally, to deal with this new benchmark, a focused CEO will look at direct opportunities to partner or acquire businesses that are or will enhance sustainability, providing differentiation and disruption.

Making sustainability sustainable

Being able to quantify the challenge, threats and opportunities has helped to stimulate action.

There are three ways to address this:

  1. The first is through incentivised investment. The European Commission has announced a €750bn post-Covid recovery plan where the structure being proposed will prioritise delivery of green projects above others. Meanwhile, in the UK, 200 leading firms from a range of sectors, alongside investors, have called on the Government to prioritise the environment in its Covid-19 recovery plans. With studies also showing that green stimuli can achieve greater benefits than more conventional alternatives, this is a real opportunity for change.
  2. Another way of addressing the challenge is through building resilient and sustainable infrastructure to support changes in the way we will now be working and living. This could mean infrastructure to support the greater adoption of electric vehicles, increasing the number of cycle-friendly commuting options, or boosting digital connectivity. New community and Smart City evolution needs considered planning, which will play an important part in reducing pollution and energy consumption whilst also improving wellbeing and productivity.
  3. Finally, collaboration between public and private sectors, academia and the financial sector. We’ve already seen this working throughout the pandemic, as businesses adapt their operations to support national resource need, academics work alongside government agencies and the Government and financial services providers deliver financial first aid for businesses and individuals.

It sets a foundation for collaboration on sustainability, allowing us to share expertise from our experience working with CEOs and CFOs.

That’s why at Barclays Corporate Banking we decided to bring products and teams together through a sustainable and green lens.

Our mission in the Sustainable Product Group is to help our clients show their green and sustainable credentials to the outside world.

It is not just the investor and institutional markets that are increasingly looking at ESG credentials, but customers, suppliers and regulators are also focused on proving the true sustainability of the sustainable business model.

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