Environmental Governance

Less ‘E’? Coronavirus Finds ESG Investors Focused on Social and Governance, Less on Environmental

Margot Habiby/ March 24, 2020

  • As the coronavirus upends life around the globe, sustainability advocates are focusing more on social and governance issues and less on environmental ones.
  • Impact investors see opportunities to advance healthtech, take care of workers and support corporate changes as the crisis spreads.  
  • Investment in startups is likely to drop the most in almost seven years in the first quarter, according to an estimate from CB Insights.

Socially responsible investing is suddenly less about climate change.

With the coronavirus straining health systems and nations’ social fabric, and the global economy grinding to a halt, the focus for many impact investors is shifting to social and governance factors, rather than the environmental ones frequently favored in ESG calculations.

From the U.S. Senate floor to Wall Street, governments and companies are focused on the health and safety of citizens and workers, containing the disease, ameliorating soaring unemployment and saving the economy. As Congress battles over a $1.8 trillion stimulus package, issues like executive pay and corporate bailouts and buybacks have also moved front and center.

The stimulus measure proposed by the president and Senate Republicans and defeated by Democrats again Monday includes “a giant, giant corporate bailout fund with no accountability” and not enough funding for healthcare, individual workers and state and local governments, said Senate Minority Leader Chuck Schumer of New York. And the bill would “affect us not just in the days to come but in the months and years to come.”

One reason for the pivot may be that focusing on social and governance issues is less controversial in a time of crisis than trying to take on the climate.

In his response to Schumer, Senate Majority Leader Mitch McConnell invoked the climate-change bogeyman, saying “Democrats won’t let us fund hospitals or save small businesses unless they get to dust off the `Green New Deal,’” a Democrat-proposed package of changes aimed at mitigating climate change. In a tweet, McConnell alleged that Democrats are holding up the measure over renewable-energy tax credits, airline emission standards and “special treatment for Big Labor.”

But make no mistake, the outlook is dire for the population and the workforce: There are more than 367,000 confirmed cases of COVID-19 around the world, with more than a 10th of them in the United States. And the World Health Organization says infections are accelerating. Global equity indexes have dived into bear-market territory and repeated actions by the world’s central banks haven’t been enough to halt the slide.

Goldman Sachs forecast last week that U.S. initial jobless claims for the week ended March 21 may climb to a seasonally adjusted 2.25 million. Layoffs are already starting in Silicon Valley, where The Information reports that four companies have cut about 20% of their workforce. They include Eight Sleep, an online mattress retailer; Triplebyte, a tech-enabled recruiting tool; The Guild, a hospitality startup; and Cabin, a luxury sleeper-bus service.

Some companies are already responding, The Financial Times reported. American Express CEO Stephen Squeri pledged that he wouldn’t immediately lay off workers even as the coronavirus took a toll on revenues. OceanFirst Bank offered to defer some loan payments for up to 90 days, told healthcare workers they’re eligible for mortgage deferrals and boosted paid time off for its employees. Citibank, BlackRock and other major investors have pledged millions to coronavirus relief.

“A distinctive feature of enduring companies is the way their leaders react to moments like these,” according to a Sequoia Capital note to its founders and CEOs earlier this month, in which the company called coronavirus a “black swan” moment. “Your employees are all aware of COVID-19 and are wondering how you will react and what it means for them.”

Some ESG startups, particularly in the healthtech space, are also stepping up to help take care of their local communities. Allie Burns, CEO of Village Capital, cited Rimidi, which has developed a screening survey for patients, and NurseDash, which helps schedule freelance nurses, in an interview with Forbes. But she acknowledged that startup funding, in general, seems to be dropping off.

Venture capital is on pace to drop more than 16% in the first quarter to $77 billion, compared with the fourth quarter of 2019, according to an estimate last week from CB Insights. That would be the second-steepest quarterly decline in the past decade, after the third quarter of 2012. And the worst hit is likely to be in Asia, with a drop of 35% in the first quarter from the fourth.

“Some of the best innovations come out of the biggest economic shocks,” Burns told Forbes. “The capital that will be most needed is in the impact sector, especially for companies helping consumers and businesses rebuild and get back on their feet. We’re going to need people to supply that capital.”

Photo by Spencer Platt/Getty Images