BNY Mellon IM: Covid-19 crisis could kick-start opportunity to invest in reshaping of economies globally

28 mei 2020

'The Covid-19 pandemic has driven EU policymakers to accelerate investment in areas that directly benefit the environment and health – we believe this has profound implications for companies and governments and the responsibility each must demonstrate to their stakeholders. Ultimately, the EU Green Recovery plan has delivered on what was expected - a proposal which incorporates clean mobility, building renovation, acceleration of renewables and hydrogen, and the circular economy at its heart.

If the proposed plan is agreed and taken forward then investors should be prepared to see the emergence of winners (beneficiaries of the recovery plan projects for example) and losers (those in sectors not touched or indeed where any subsidies could be cut to support funding elsewhere). Further details on how the plans will be financed and agreed by member states will be eagerly anticipated by markets.

These projects will likely further boost the growth in issuance of green and sustainable bonds (both corporates and sovereigns), building scale and diversification of that market.

The Covid-19 crisis has made social and economic concerns more pressing and it is likely to kick-start the opportunity to invest in the reshaping of economies globally. Going forward we expect increasing focus on environmental, social and governance (ESG) factors from investors. For fixed income investors, engagement will be an important driver of change, holding management teams to account. The debt capital markets have been an especially important source of funding for many companies to replenish their cash reserves through the crisis this year and the pendulum of influence has swung back in favour of debt investors due to the enhanced focus on the balance sheet by all stakeholders. This will likely remain for some time in a post-coronavirus world, where the value of sustainability has also received a significant boost. Issuers will be under scrutiny not only on their approach to dealing with the pandemic, but beyond and whether they can sustain appropriate performance in a prolonged recovery, and one which supports a broad range of stakeholders, including their employees, customers, supply chain and wider society.

The social element within ESG should command more attention than it has done in the past, as this crisis has become a societal issue, and as governments and companies are asked to build a fairer economy.'