ESG in the Spotlight - Earth Day

Tavistock Wealth - 24th April 2020

Earth Day, commemorated each year on 22/04 by more than 1bn people, is the largest annual secular observance in the world. The first iteration in 1970 brought 10% of the US population to the streets to demand better protection of the planet. Fifty years on, the Earth Day Network (EDN) has achieved much. Credited with kick starting the modern environmental movement back, the EDN has since broadened its mandate beyond the environment to focus also on global social and governance issues.

Earth Day is perhaps of greater significance this year than in any since 2015, when the United Nations (UN) chose 22/04 to sign the Paris Climate Agreement into being. The ongoing COVID-19 outbreak is a rare black swan event (low frequency, high impact). There is evidence emerging that air pollution (as measured by tiny PM2.5 pollutant particles) makes COVID-19 more lethal – suggesting that climate-related green swan events are an immediate concern for the macroeconomy too.

As world leaders and business executives begin to consider how best to mitigate future black and green swan risk events, there is an opportunity to collectively embrace the EDNs call to action – and make use of an increasingly substantial ‘sustainability toolbox.’

The Toolbox

Governments can prioritise renewable energy projects with fiscal and monetary stimuli – as UK Chancellor of the Exchequer Rishi Sunak did last month. International institutions can put forward ESG-friendly legislation e.g. the UN Principles for Responsible Investing. Monetary authorities can tilt quantitative easing programmes with sustainability in mind, an idea the European Central Bank is currently toying with. Companies can expand and make good on ambitious ESG targets – Royal Dutch Shell has joined a growing list of energy giants targeting ‘net-zero’ emissions from its operations.

Investors for their part can choose from a variety of novel asset classes to suit their ESG needs, many of which have been proving to critics their all-weather characteristics in volatile markets of late – see our recent Q2 2020 Perspectives.

The 50th anniversary of Earth Day coincides with a COVID-19-induced watershed moment. Some commentators have been quick to point out that ESG considerations were largely thrown out the window post-financial crisis, the last black swan event – and will be this time around too. But with a ‘sustainability toolbox’ to draw on and incentives made plain, there is reason to be optimistic that the macroeconomy can be rebuilt and reshuffled to better weather uncertain times ahead.

This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Bloomberg, Tavistock Wealth Limited unless otherwise stated.  

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