The COVID-19 pandemic has had a dramatic impact on the global economy. The economic research department of Euler Hermes expects a sharp recession in the first half of 2020, most likely followed by a U-shaped recovery. The number of bankruptcies is expected to increase by more than 20% worldwide in 2020 and, within the European Union alone, more than 65m employees may need considerable support measures. Euler Hermes’ Ms Virginie Fauvel reports.
We have never known such a situation where no business, no leader, no industry and no government is spared from an uncontrollable phenomenon. Dramatically, the fragility of businesses and our world has been exposed.
But what could the aftermath be? Will the consequences of this crisis permanently mark the business world? Beyond the economic aspect, are we going to see a paradigm shift in the way companies see the transformation of their activities, their strategies and their priorities?
At the very least, they will surely have to reassess their dependency on their ecosystem and re-evaluate their risks at all levels. Decisions will be made to modify or secure supply and distribution circuits. It is not unimaginable that shorter circuits could be set up for example and that the relevance of offshore could be reviewed.
Changing dynamics
Will the traditional drivers of a capitalist society – productivity, profit and growth – also be questioned? Last year, a Harris Poll revealed that younger generations are less attached to capitalist values. Will it be time after this crisis for companies to get more in tune with societal movements, to attract younger generations and strengthen the meaning in their actions with a clear societal vision and a reinforced long-term impact?
We can already observe, at a national level, that the state of health emergency encourages the values of solidarity and benevolence, both individually and institutionally. We currently see people shopping for their neighbours, support networks for single people are set up, care and emergency services are recognised at their true value.
We see some governments working hand-in-hand, institutions or countries joining forces to fight the pandemic and find solutions. The world must show its unity in order to emerge stronger or, failing that, it will be sadly weakened. The same feeling of solidarity that manifested itself during recent terrorist attacks, during the #metoo movement or during the recent bushfires in Australia emerges.
It is possible that the concept of solidarity becomes a stronger value in the business world tool. We can clearly see today players collaborating who were previously in competition. Pharmaceutical companies join forces to find a vaccine as quickly as possible; companies from all countries stopped their usual production in order to manufacture ventilators, disinfectant gel and medical masks.
Our credit insurance industry is also taking action. In France, its main players have recently mobilised with the government to reactivate support systems (known as CAP) with a global budget of EUR12bn ($13bn) in order to help companies survive the impact of the economic deadlock. In Germany, credit insurers and the government have collaborated to guarantee the payment of compensation to businesses up to EUR30bn.
Looking to the future
This closer and more harmonious relationship between players is the beginnings of what could be put in place after the pandemic. Companies can no longer continue to be passive on subjects that require a collective approach. This unprecedented crisis is prompting companies to act with integrity and to put themselves at the service of society by placing raison d’être as the first priority. How are businesses going to have to transform themselves to ensure their future sustainability? How does business sustainability tie in with the increasing attention and demand on the environmental, social and governance (ESG) front?
Compliance with ESG criteria was already a key issue before COVID-19. Nevertheless, this crisis has highlighted the ‘S’ component of it. In concrete terms, many companies are already helping to find solutions to respond to certain emergencies. For example, Google donated millions of dollars to support the WHO; LVMH re-oriented its production line to create large quantities of alcohol gel; Toyota manufactured protective visors through 3D-printing; and Decathlon put an end to the sales of diving masks and equipment so that they can be connected to medical respirators. Companies that demonstrate their civic engagement prove that they are ready to assume a responsible role within society; at the service of their customers and more broadly for a collective wellbeing.
Collaboration between public authorities and the private sector on ESG issues is now crucial. The Net-Zero Asset Owner Alliance, led by our parent company Allianz, is an example of investors stepping up to protect the people and the planet. The initiative brings together more than 20 asset owners - with over $4tn of investments worldwide - to move their investment portfolios toward net-zero emission by 2050.
ESG to the fore
It is increasingly evident that economic strength and ESG cannot be separated. Certain companies, and potentially certain sectors and countries, will become less attractive to investors due to ESG risks, which will make their financing much more expensive. At Euler Hermes, we are already integrating ESG criteria to improve the analysis of country risks and makes it very clear that ESG criteria will become an essential basis for any investment decision in a sector or country.
Overall, the COVID-19 crisis has so far demonstrated the close relationship between sustainability, corporate resilience and economic activity. ESG factors are likely to become the new standard for helping businesses respond effectively to unexpected challenges. It is time for all of us to start questioning our actions. Are we, as consumers and businesses, able to return to our previous lifestyles without questioning the impact of each operation, purchase or investment? Will we continue to support companies that are not looking for alternative solutions to reduce their impact on the environment? Will we continue to support companies that are not willing to contributing positively to a post-crisis society?
The longer this crisis continues, the greater the consequences for ‘normal’ life. History teaches us that such massive shocks trigger important changes thereafter. For the COVID-19 crisis, this could be synonymous with a transformation of companies on several levels, as all sectors are forced to rethink their ways of acting. It is certain that there will be a ‘before’ and an ‘after’ COVID-19, but it remains to be determined how exactly this future will look. One thing for certain, the COVID-19 crisis will mark a turning point in our history as businesses, governments and consumers become more vigilant on issues such as ESG and their global consequences.
To prepare for the aftermath, companies must adapt, anticipate changes and accelerate their transformation. In this, preserving, or even strengthening their capacity to innovate is fundamental. Indeed, it is not enough to succeed in going through this unprecedented crisis, it is essential to be able to be ready for the new world after COVID-19. Let us hope that the ‘after’ is more united than the ‘before’. A
Ms Virginie Fauvel is a member of the board of management in charge of the Americas and chief transformation officer at Euler Hermes.