ESG Trends

COVID-19: Rethinking Resilient and Sustainable Development

Tracey Xiang2020-05-18

The sudden disruption to the global economy and people’s normal life resulting from the global spread of COVID-19 will have far-reaching economic and social effects.

The rapid global spread of COVID-19 has had immediate, dramatic impacts on nearly all major economies. Mobility restrictions and social distancing are the major cause to the social and economic disruptions. Businesses and other organizations that require long-distance travel or physical presence have seen sudden significant drops in business volume. The International Labor Organization estimates that 6.7% of working hours globally, equivalent to 195 million full-time workers, will be wiped out in the second quarter. The International Monetary Fund projected the global GDP will decline by 3% in 2020.  

Many social and economic changes resulting from this crisis are expected to be long-lasting after the economy rebounds or permanent. Many industries and governments have begun to rethink their long-term development strategies. 

Digital and Automation Acceleration

While the information technology industry wanted to become central to interpersonal and business interactions and transactions for years, this crisis provides perhaps the strongest motivation for various businesses and industries to accelerate digitalization and automation or redesign their business processes or models.

It’s not surprising that digital services and platforms that enable long-distance communication and collaboration such as telecommuting services have seen a dramatic surge in usage in recent months. Daily meeting participants of video conferencing app Zoom have rocketed to 300 million from just about 10 million in last December. Online collaboration service Slack reported a big increase in the number of paying customers in the first quarter. Microsoft Teams, the teleconferencing service developed by Microsoft, also reported big increases in daily active users. Google has announced to offer its conferencing service Google Meet for free. And Facebook has hastily launched a me-too product.

Over 90% of the world’s student population has been impacted by school closures, according to UNESCO. Online platforms and related digital tools have become the no-brainer choice for schools and other educational institutions to facilitate distance learning.

Online banking, grocery and food delivery, and many other digital services that require little to no face-to-face communications are gaining in popularity. Digital entertainment services have also seen considerable increases in traffic and consumption volume.

The high penetration levels of digital services and platforms have also enabled implementation of large-scale applications to help tackle such a widespread crisis. Apple and Google have added a feature onto iPhones and Android platforms, respectively, to locate people that have COVID-19 and alert people that have recently contacted them, and plan to open the technology to health authorities to develop related applications. IBM has recently released a platform for medical supplies that uses its own blockchain-based identity solution for qualification and identification. Latest digital technologies are used to track and study the economic and social changes caused by the crisis and provide policy makers and businesses with timely research results. For instance, near real-time commercial data on mobility and illness patterns collected by smart-devices are used by researchers to analyze public and private responses to policy efforts and make predictions.

Bigger and more far-reaching changes are expected to take place in many traditional industries such as supply chain and logistics through further digitalization and automation implemented during this crisis. While in many industries digital transformation has already been underway for a long time, development or implementation of more sophisticated solutions has been slow, Now they are being implemented overnight.

When the pandemic fades, digitalization and automation realized during the crisis will persist -- the world will have a more digitalized and automated global trade ecosystem, more purchases and business transactions processed through digital channels, and workplace flexibility is more common.

We may have a new era for science and technology, according to the latest report issued by Mary Meeker, the well-known analyst of the commercial internet trends and co-founder of Bond Capital, that scientists and domain experts will gain more prominence in our society.

Economic and Social Changes

The pandemic is causing environmental, social, economic and political changes and many of the changes will have lasting effects to our economies and societies. 

Despite heavy economic losses in many industries, people have come to appreciate the upside of an economy with significantly reduced traffic flows and travels. Many countries or industrial cities reported huge drop in pollutant emissions in the first quarter thanks to mobility restrictions. Urban traffic congestion has disappeared and average commuting time significantly dropped.

Financial markets have responded immediately to these changes and trends. ESG investment products, with less exposure to energy sectors and generally overweight on technology, outperformed in capital markets in the first quarter. Information technology was the best performing sector, according to financial services research firm MorningStar. Sustainable equity funds outperformed in both developed and emerging markets in the first quarter, according to MorningStar. Stocks with better ESG credentials outperformed between December 2019 and March 2020, according to a recent research report published by HSBC. Corporations with less exposure to global supply chains and customer locations and those that have invested more in corporate social responsibility (CSR) experienced miller declines in stock prices, according to a recent working paper published onto the National Bureau of Economic Research (NBER) platform. 

While the emissions and traffic will revert back when global economies resume, many changes such as upgraded technology platforms will be permanent and many others like purchase and consumption habits formed during the crisis are expected to persist. Industries and companies that previously depended on face-to-face interactions or with high exposure to global supply chains and customer locations will have to adapt to these changes with technology or new business strategies.

The crisis has also exposed unexpected problems and challenges that the world needs to address post pandemic. For instance, while online education has been regarded as a major solution to inequality in educational resources, this pandemic has shown that the digital divide and the gap in digital literacy among parents may be wider than many thought before.

Many industries and governments will have to rethink their development strategies. Resilient and sustainable development is expected to be a popular theme for industries, countries and investors after the pandemic fades.

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