Companies with Socially Sustainable Businesses Are Doing Better During the Pandemic

As the pandemic continues to wreak havoc in the majority of the most industrialised and wealthy countries of the world, the importance of socially responsible investing has not diminished but has come up to the top even more prominently. During these times, supporting the causes of social investing has become even more important than they are in normal times and any withdrawal of support at this stage could lead to loss of all the gains that had been made over the years. In this regard, several governmental and non-governmental agencies have also come out in support and have taken the lead in promoting and supporting social causes like employment and livelihood, but for so many other causes the support has to come from other entities, who have the motive as well as the resources to support them. Socially responsible investing styled funds and investors also invest in companies who actively promote social and environmental causes. Apart from the environmental causes that have been discussed above, social causes like making donations to underprivileged communities, promoting gender diversity in the workspace, bringing down the energy usage and reducing an organisation’s carbon footprint are some of the many causes that these funds promote. There are several large fund houses in the world who have even taken a step ahead in this regard and due to their significant presence in company boards on account of their large shareholdings are able to pass socially desirable resolutions that subsequently go ahead and get implemented. On this front, the coronavirus pandemic would not have a material effect, and socially themed investors are less likely to deviate from their objectives. However, the pandemic has brought catastrophic changes the way money markets, and stock exchanges are behaving. Hence it may be difficult for the socially responsible styled investors to support their causes this time.

Amid all this, one of the pioneers of ECG investing (environmental, social and governance) BlackRock has come out with a report which has highlighted that companies who have high scores on the mentioned three factors have been performing well during the current pandemic. These companies who have invested more over a period of time on sustainability, better customer relations and strong workforce management are in a much better position to whether this turmoil compared to those who have a low score on the above factors. The fund house, which is one of the largest and most respected investment management company in the world has an active funds base that is dedicated to investing in companies who are progressive in ECG practices. The company’s report also comes in sharp contrast to the widely held belief that businesses who have a wider exposure to social causes are losing money more rapidly than the ones who have their business models focused more on profitability. There are several industries which are currently deeply battered because of the pandemic including airlines, oil & gas, and leisure & tourism, most of these industries are currently facing prospects of massive revenue losses and staff lay-offs. These companies which have always been low on their ECG scores have even before the pandemic had to face investors ire on these issues. The Blackrock report, in a way confirms the beliefs of many on the value creation potential of long-term social investing. Blackrock is known for its efforts to engage with the management of large corporations and also use its presence on their boards on account of its shareholdings to impress upon the benefits of social and sustainable business practices. Among its contemporary investment management firms and also among its funds who are more inclined towards ECG, have suffered less during the recent stock market meltdowns.

While Blackrock calls it by the name ECG investing, the concept of ethical investing or socially responsible investing has been gathering prominence in the world for some time now. Companies who support the cause of environment protection, energy conservation, animal rights, narcotics eradication, education for the underprivileged, gender equality, good workplace practices, better customer relations, better public relations and a host of several other progressive corporate activities come under the ambit of social investing or ECG investing. These practices were not very popular with investment managers in the past, who were often guided by a single objective of profit maximisation, is now gaining prominence due to their long term value creation potential both for the investors as well as for social betterment. Many not for profit organisations across the world, wealthy individuals and families and high net worth investor groups, understanding the importance of these causes to the betterment of the society and for a brighter future have created and or support such ethical funds that care and promote businesses which adopt these practices. During this present pandemic crisis when the world is going through a massive healthcare turmoil, the performance of several of these companies and their activities are under scrutiny by investors and analysts to see if there was indeed any benefit in adopting such an investment style or it just resulted in eroding investors wealth. In this regard the Blackrock report has come in the right time, as the state of the world economy that it is in right now, it has become increasingly difficult to finance these enterprises who support their activities when everybody is trying to conserve cash. In today’s date, there are several investment management companies and funds that invest with a varied socially responsible investment style themes, their motivation in investing in companies engaging in socially responsible activities is guided more by a holistic view of value creation and not profit maximisation. These particular type of investment funds during these crises are facing problems in supporting their causes, operating through these tumultuous times.

Businesses who have transformed their businesses to be more socially sustainable or investments vehicles which invest in this category of companies have been relatively less battered during the recent capital market meltdown. These companies and funds also have the advantage of increasing support of government and quasi-government organisations, national government, IMF, World Bank, and several other multilateral financial institutions. On the same time the, national government often promote such businesses and funds which support businesses which come from underdeveloped areas, work in fields that support a social and environmental cause. Several environment advocacies groups have already been pointing out that the lockdown has brought about significant qualitative environmental changes in the world.