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So far, sustainable and responsible investment has focused mainly on environmental protection. This is reflected in the European regulation on sustainable finance, which initially considers the environmental aspect.

But the coronavirus crisis has highlighted other factors and reinforced the link between questions of sustainability, the economy and companies' financial performance.

E: What are the consequences for the environment?

The impact is mixed. In the short term, the lockdown has had positive effects on the environment: a reduction in CO2 emissions, better air and water quality, etc. The ‘Earth Overshoot Day’, the date on which our ecological footprint of resource consumption exceeds the planet's regeneration capacity, has been put back by three weeks as a result of the decline in economic activity.

However, the longer-term environmental impact will depend on the upcoming economic recovery: will it be green? Europe is poised to confirm its climate ambitions through the ‘Green Deal’. Some European governments are making their aid to companies conditional on reducing CO2 emissions, such as the French government, which is supporting Air France in return for commitments to improve its profitability and reduce its CO2 emissions. In contrast, the United States may well revise its greenhouse gas emission reduction targets downwards.

S: Heading for a social crisis?

The crisis has highlighted critical social issues: the importance of workers' health, the vulnerability of supply chains and the value of the human factor. Companies that have taken pains to protect their workers and engage in social dialogue have found it easier to ensure business continuity.

Some companies have even gone a step further. Take Danone, a company in the portfolio of Banque de Luxembourg’s BL Sustainable Horizon fund, which, while guaranteeing its employees’ jobs, has also shortened its payment lead times to suppliers. Its support for its vendors reflects an integrated approach that embraces all the company's stakeholders. According to a survey by JP Morgan on the implications of the COVID-19 crisis on ESG1, it seems that investors are increasingly looking at companies from a social perspective.

G: What are the impacts on governance?

Governance is not a minor matter! This is evident in debates over executive compensation and dividend distributions in times of recession. The authorities in various countries have recommended the suspension of dividends during the crisis. Some people think that the crisis could bring about a lasting change in the way companies allocate their cash, taking into account their responsibility to employees and society in general, including shareholders.

The ‘beneficial’ effect of the COVID-19 crisis on sustainable and responsible investment could turn out to be a better balance between Environmental, Social and Governance factors. Nevertheless, with several million jobs likely to disappear, a significant increase in social inequalities is highly likely.

Have sustainable and responsible funds suffered particularly during this period?

The crisis is the first 'stress test' for the sustainable and responsible investment sector, which has been growing strongly in recent years. It is interesting to note that global equity indices with high ESG ratings (MSCI World AC SRI) have demonstrated a measure of resilience since the start of the year. For example, at the end of May, the MSCI World AC SRI index outperformed the MSCI World AC index (which does not take the ESG rating into account) by 2.5%, confirming the trend of recent years. Admittedly, the reference period is short and we should be cautious.

Nevertheless, at a time of acute crisis, the inclusion of ESG criteria seems to be a bonus in terms of stock market performance. This is partly due to a bias towards quality growth companies, but also to the inclusion of risk factors in the analysis of companies, implying they are better able to withstand external shocks.

European investors have continued to favour the ESG approach during this turbulent period. Whereas ‘classic’ funds saw significant outflows in February and March, funds with an ESG approach recorded positive inflows during the first quarter of 20202.

1 JP Morgan Cazenove, ‘Stay safe and think long term’, Europe Equity Research, 30 March 2020.

2 Morningstar Manager Research, European Sustainable Funds Prove Resilient Amid Covid 19 Sell-Off, April 2020.

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