28 April 2020

Sustainable Investing

Why COVID-19 could be a catalyst for sustainable investing. Sabrin Rahman, Regional Head of Sustainability, MENAT discusses.

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Earlier this year, before the novel coronavirus (COVID-19) pandemic brought the global economy to a standstill, the sustainable investing landscape was witnessing rapid change. Led by several years of shifting societal expectations, investors were placing increased importance on the wider social and environmental impact of businesses and international supply chains. They were considering more stakeholders and thinking longer term to make purpose-led investments.

The global response to the spread of COVID-19 is, in many respects, the ultimate expression of this purpose-led approach to solving a problem that is faced by all of humanity. And it could be a catalyst to supercharge the thinking, action and execution of purpose-led investments. COVID-19 just might be the trigger that fires sustainable finance to the next level.

Adapting business models

Already we are seeing business models adapt to immediate areas of concern, as well as reposition for what will be the ‘new normal’. One sector that has had to radically adapt a centuries old model has been education. The industry was required to evolve overnight with huge pressure from parents and students. But the industry has reacted impressively, especially when you consider how long it has run on an easily repeatable formula, with very little upheaval. Its future will embrace soft skills and industry skills alongside core STEM (science, technology, engineering and mathematics) subjects. Future skills, including financial literacy and capability, have long been a focus for HSBC, where we have supported leading educational organisations and government ministries across the Middle East.

Another area of society that has faced the challenge of overnight adaption is the small and medium-sized enterprise (SME) sector. The entrepreneurs and companies in this sector are often the very definition of community-focused businesses and, with communities in virtual lockdown, have found themselves with an urgent need to pivot their business models. Doing so requires not just financial support and the loyalty and consideration of customers, but also a willingness to hear that there may be different ways for a business to meet customer needs. The global lockdown is helping shape that conversation – one that HSBC has been part of for quite some time.

We’ve responded in this region by increasing the support to our entrepreneur-targeted programmes, such as the Social Impact Accelerator (C3) and the TiE Mentorship Programme, by supporting a shift to virtual sessions. This development has allowed us to increase our number of participants as well as the one-to-one time we have with the entrepreneurs we support – even though that means through webcam. We’ve also been offering tailored sessions on how to manage cash flow in such challenging times, to help give entrepreneurs the best guidance possible to chart the right course.

Social bonds

New approaches are required at all levels of the economy. Sovereigns, multinational bodies and corporates need to look for innovative ways to combat the situation and alleviate its effects, as well as restoring balance sheets and budgets. One such solution gaining traction in international markets is the use of social bonds, with a focus on responses to the pandemic taking precedence. HSBC supported the first COVID-19 alleviation bonds out of Asia and Europe.

The inaugural COVID-bond issuances we have seen to date are evidence of the demand for green, social and sustainable bonds globally. So far, we count US$42.4 billion of bonds issued in response to COVID-19, of which US$6.7 billion have been in social bond format.

While much of what lies ahead remains unknown, we can be sure that only the most agile and forward-looking organisations will survive in future investment environments. Adopting a sustainability lens, which by definition is holistic and long-term, will better prepare businesses to adapt, reorganise and find new growth, and continue to thrive.

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