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How will the Covid-19 coronavirus pandemic affect the European ESG agenda?

The Covid-19 coronavirus crisis has brought into sharp focus the immediate economic priorities for governments and businesses. Where does this leave the environmental, social and governance (ESG) agenda? Matt Townsend, a Partner in Allen & Overy's International Environmental Law and Regulatory Law Group, assesses the potential consequences. 

The 2008 recession was characterised by a noticeable shift away from environmental priorities for a prolonged period. Will we see the same dynamics at work in the current Covid-19 crisis or, as many believe, is an environmentally and socially sustainable recovery more likely?

While the full effects of the pandemic are still to unfold, I would make a number of immediate observations:

  • Companies will need to better map and mitigate their physical risks. This crisis is unique among post-war recessions in that it is driven by physical risk and not just financial. This will inevitably lead businesses to reassess their physical asset and supply chain risks. We are therefore likely to see other physical threats, such as climate change, coming into sharper focus in business contingency planning. 
  • The crisis has triggered a significant growth in government command and control measures. Coupled with the need for major economic rebuild programmes across Europe, the European Commission and national governments have a stronger interventionist platform from which to drive their environmental agendas i.e. governments may have more levers at their disposal to pursue ESG-based policy objectives.  
  • The level of state aid across Europe has increased significantly. In certain member states such as France, this has come with ESG conditions attached (eg Air France). These type of opportunistic measures may prove popular among governments committed to ambitious net zero carbon targets.
  • The human impacts of the crisis have been immense. This will likely trigger businesses to look more closely at their human capital and community impacts.  The post-Covid rebuild will need to focus on social cohesion. In addition, unlike in the 2008 crisis, businesses are much more wary of the reputational harm that immediate response measures will have (although, unfortunately, many businesses will have little choice).  At least in the medium term, we may witness a shift in emphasis from efficiency to business resilience and long-term sustainability (although these three factors should not be seen as mutually exclusive). 
  • We are already seeing signs of growth in new socially-linked financial products such as social or Covid-19 bonds. These bonds are linked to medical research or equipment or projects to alleviate unemployment in the most badly affected regions. As the longer-term effects of the pandemic become clearer, we expect more issuance, giving further impetus to the hitherto less significant social element of ESG-focussed financial products.
  • We are likely to see an acceleration in efforts to decarbonise economies. This will partly be driven by social forces (populations having experienced a drop in emissions and cleaner air) but more significantly by national governments building sustainability into their economic recovery programmes. These programmes will likely be significant and present governments with a real opportunity to shape their economies for the years ahead (although the impacts of a low oil price will need to be addressed). A recent study1 suggested that certain types of recovery policies that combine economic and climate goals can deliver higher economic multipliers particularly in areas such as renewable energy, CCS, energy efficient buildings (new and retrofit) and clean R&D.
  • The crisis is providing a wake-up call for better corporate risk governance. While only a few commentators predicted the potential for a major virus outbreak, the need for businesses to better understand and manage physical risks is urgent. Contingency planning has, for many, focused on areas such as data breaches, security and environmental or health and safety accidents.  It will need to broaden.      
  • It is too early to tell what the impacts of the crisis will be on Europe's ambitious Green Deal. A number of the measures set out in the programme will be delayed and priorities within the programme will need to be reassessed. The proposed allocation of the Just Transition Funds will also come under scrutiny given the scale of government deficits. However, for the reasons discussed, we may well find that countries deploy their recovery programmes in a way that provides a major stimulus to the environmental and digital transition President von der Leyen has called for. 

Only when the focus shifts from rescue to recovery will we have a sense as to the deeper impacts of Covid-19. The crisis has clearly put the sustainability of our economies and preservation of human capital at the forefront of the agenda and in this sense, the effects of the 2020 crisis will be starkly different to those felt post-2008.

A version of this article first appeared on the ENDS Report's web site on 18 May 2020 (registration required).



  1. Oxford Smith School of Enterprise and the Environment, Working Paper No 20-22, 4 May 2020

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