Sustainability trends in the pandemic's "new normal"

Anna Triponel

July 6, 2020

Investment firm Generation Investment Management LLP (Generation) released its fourth annual Sustainability Trends Report for 2020 which focuses on disruptions and new opportunities for business in the face of the global COVID-19 pandemic. Generation highlights the key trends anticipated in the sectors of energy, health, economy and finance, mobility and buildings, consumers, and trade and travel. It draws on data from Generation Investment’s own investment frameworks as well as more than 190 other sources (e.g. UN reports, investor and company reports, government data, and polls). We include some of the diagrams in this update, but there are many more for you to review in the actual report.

ENERGY: “2020 has highlighted the resilience of renewable energy sources”

  • Despite the COVID-19 pandemic’s shocks to the global economy that also impacted energy markets, the sustainable energy transition will only continue to accelerate and expand as climate change continues relatively unabated. Generation recommends that “[p]olicy support in recovery plans should facilitate a managed decline for high carbon energy and a scaling up of zero carbon energy systems.”
  • According to Generation, “[o]nly the European Union, France, United Kingdom and Canada are taking decisive action to ensure stimulus supports a more sustainable transition.”
  • Moving towards more renewable energy would create new job opportunities globally as governments work to stimulate employment following the economic impacts of the pandemic. Generation calculates that “$10 million spent on renewable energy creates nearly three times as many jobs as $10 million spent on fossil fuels.”

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

HEALTH: “The pandemic may lead to a tipping point in the adoption of personalised healthcare”

  • The report states that “[i]nterest in direct-to-consumer healthcare quadrupled over the last five years, and in April 2020 COVID-19 became one of the top-five drivers of telehealth.”
  • However, the pandemic has also shone a spotlight on gaps and weaknesses in the health care infrastructure of many countries. Generation predicts that the weaknesses exposed by the pandemic will “trigger new thinking on social safety nets and the role of essential workers” in order to be prepared for future global health crises. In addition, the pandemic has served to highlight the disparities in access to healthcare even in highly developed countries, in particular the U.S.: “In the US, access to treatment appears to have a big impact on life expectancy for different groups. In some countries, like the US, administrative costs account for nearly 10% of total health spending.”

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

ECONOMY & FINANCE: “The crisis has highlighted the resilience of ESG leaders”

  • Generation calls on credit ratings agencies to better take account of Environmental, Social and Governance (ESG) factors when assessing corporate risks. This should “urgently improve the financial sector’s accountability on climate change”, and would also respond to the demands of ESG-focused investors, 62% of whom want “greater consistency or comparability across rating methodologies.”
  • There is also a growing need for ESG data to “be more forward-looking and more closely connected to real world impact.” According to the report, 62% of executives and 58% of investment professionals do not consistently integrate ESG in assessments of competitors, suppliers or capital projects, largely due to a lack of actionable data.
  • The pandemic has exposed “economic faultlines and the need for an inclusive recovery,” with the poorest workers and countries most at risk of negative impacts. The report suggests that “[p]erceptions around the need for social safety nets and the role of the state in the economy appear to be shifting in response to COVID-19 and its impacts. It is unclear precisely how this will play out politically and in practice in the coming years. However, there is both the potential and the responsibility to make a decisive shift to a new sustainable and inclusive economic model in the months ahead.”

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

MOBILITY & BUILDINGS: “Over half the world now lives in cities, and the pandemic is causing people to rethink where they live and how they prefer to move around”

  • As climate action becomes an increasingly urgent priority globally, the transition to more sustainable transportation options (such as electric cars) shows no signs of reversing despite the economic crisis caused by the pandemic. However, fewer people are taking public transportation in light of health concerns. Nonetheless, Generation believes that “the transition [towards sustainable transportation] will likely accelerate once the sector gets back on its feet.”
  • “Smart energy investments”—such as increasing energy efficiency in buildings, developing technology to enable net-zero carbon buildings—are important drivers of post-pandemic economic recovery: according to Generation, these investments “are among the most cost effective and job intensive available.”

CONSUMERS: “The pandemic represents an inflection point for consumer expectations and behaviours in ways that could (with policy support) become more permanent”

  • People around the world believe that governments should now be taking actions aimed at addressing climate change. As of April 2020, Generation reports that 65% of 26,030 people surveyed globally want their governments to scale up climate efforts, while the “share of Americans expressing sustainable views has risen by more than 50% in a decade.”
  • Consumers continue to demand more sustainable materials in the products and services they purchase, such as alternatives to single-use plastic; it remains to be seen whether this trend is likely to continue once the pandemic ebbs.
  • Companies are innovating to improve the sustainability of food systems in response to consumer preferences: “75% of consumers have considered purchasing or consuming a plant-based protein option and the amount of choice is increasing, with 129% more plant-based yoghurt products compared to 6% less animal-based yoghurt products available in the US alone last year.”

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

TRADE & TRAVEL: “Long-distance travel and supply chains are key frontiers for sustainability”

  • Traditional travel and transportation modes have been significantly disrupted by the global pandemic, negatively impacting global trade. As a result, Generation states that businesses and govermments will need to adapt global supply chains to deal with new travel and trade restrictions. The report predicts that “[c]ircular economy, climate and digital innovation will be key pillars of the EU’s recovery plans.” “China’s policy decisions in the 14th Five Year Plan will be crucial.”
  • Disruptions to trade may result in a “sharp reversal of globalization [which] could push more people into extreme poverty.” Generation points out that “[d]eglobalisation and protectionism would be likely inflationary, and the poor would suffer from this the most.”
  • In terms of travel, transportation sectors are likely to undergo significant changes to adapt to the new normal. For example, as the aviation industry struggles under a decline in travel, Generation believes these challenges will continue to mount. In addition, as the maritime sector adopts new emissions targets to meet global climate goals in line with the UN’s 2018 International Agreement on Shipping Emissions, Generation indicates that this “will drive a major change in the sector, deeper even than the changes brought in on fuel quality.”

STR2020_Fig 13 part 2

Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

“The pandemic is revealing new insights into our shared sustainability challenges. The interlocking nature of our climate, ecological and social crises. The vulnerability and resilience of our societies to shocks. The depth and nature of economic and social inequalities. Our dependence on institutions and cooperation for prosperity and stability, at a time when mutual trust has collapsed. This is a profoundly difficult time for many people. … The acceleration of sustainability trends this year provides important glimpses into the future: how we live, how we work, where we want to live and what we want, and need, to consume. Beyond the short-term impacts, there is a sense of new political and social realities forming that provide a generational opportunity. We believe the action and momentum triggered by events this year will prove a powerful catalyst for sustainability.”                        

        Source: Generation Investment Management LLP, Sustainability Trends Report 2020 (July 2020)

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