Sustainability in times of a crisis

Sandra: "The main economic consequence is that, for fear of contamination, people less frequently visit public spaces. By which I mean they spend less time going out to buy goods or services and travel to work less often. As a result, all the economy’s non-essential consumption and production came to a standstill during the various lockdowns worldwide, and in all affected countries simultaneously. Such a crisis has never been seen before. We’ve long thought that the lockdown measures themselves were causing the economic damage, but now we know better: it’s mainly the consumer who is holding back, lockdown or no lockdown. In regions where public life was not, or less strictly, shut down, the damage was almost as great. The tricky thing here is that you also have to take the situation prior to the virus outbreak into account in your calculations, as there are good reasons why the regions differ from each other in the measures that have been taken. There has now been a lot of research published that clearly shows that it’s the fear of the virus, and far less any government measures, that cause the damage."

Sandra: "That they’re suffering from reduced turnover and so have difficulty meeting their costs. In particular, in the directly affected sectors, such as the hotel and catering industry but also manufacturing industries dependent on trade, we see businesspeople wondering exactly what their earnings model is going to look like in the future. We’ve therefore written a report where, per sector, we’ve considered the structural changes following Covid-19 that might drive developments within that sector. It was a rough first attempt, but an informative one nonetheless."

Sandra: "It’s a bit of leading question, as it’s highly doubtful whether it will actually have any positive impact on sustainability at all. Potentially, the stagnation of an economy with a large fossil fuel sector could be seized as an opportunity to implement a ‘reset’. But companies can’t do that on their own. My hope was that following the lockdown the government would implement a broad levy on CO2. The proceeds from that tax could be paid out as a dividend, so that instead of a curb on recovery the tax would be a catalyst for green recovery. That hasn’t happened and, in the meantime, a good deal of industrial activity is fast returning to pre-corona levels of emissions. In fact, the fear of contamination is only making road traffic busier. People are avoiding public transport."

Sandra: "Definitely, and only become more important. Both from a European policy (the green deal) perspective and in terms of the physical consequences. Mounting heat, drought and flood risks also play an increasingly important role, so we’ll have to do something to address that."

Richard: "ABN AMRO translates sustainability challenges into services to help its clients with their transition. This ranges from helping individuals make their homes energy-efficient, or encouraging them to invest sustainably, to helping companies develop circular business models and make their supply chains robust.

Finance people can play an important role within a company in making the business model more sustainable. I’d even go so far as to say that without buy-in from the finance organisation, the transition is far, far more difficult. It says a lot, for example, that the CFO and co-CEO of DSM Geraldine Matchett is a genuine pioneer in ensuring her finance organisation is the driver and enabler of sustainability within DSM.

There’s also a lot changing in the field of reporting (partly due to EU legislation), and companies will have to report different data. Non-financial data that’s essential for private and institutional investors and shareholders. We’re happy to share our knowledge and experience in this area with our clients."

Richard: "In a number of ways, but the first step is to build up your own knowledge and know what the frontrunners are doing in this area. I’d suggest downloading the documents from A4S (Accounting for Sustainability), of which ABN AMRO is a partner, and with that structure in hand, see where and how you can create value for your company. You don't have to do it alone; we’d be more than happy to help."

Richard: "What you see is an intensive collaboration between the public and private sectors, including between banks and the relevant ministries. During corona, banks have really been able to demonstrate that they serve the public interest. Both governments and the financial sector will invest heavily in financing the economy out of the corona crisis. But in doing so, these short-term initiatives must be brought in line with the long-term global and local sustainability agendas. If we fail to do so, the money will soon run out without sufficient progress being made with the transition.

The steps taken by the EU through the EU Sustainable Finance Action Plan will have a major impact on European companies and financial institutions, but also far beyond them. Where sustainability was previously seen as soft, qualitative, a vision and more of an ‘art’, these regulations and initiatives from the EU will now ensure it is concrete, quantitative, mandatory and more of a science.

The response of the financial sector is that in the coming years they really will incorporate ESG (Environmental, Social, and Corporate Governance) into the heart of their investment and credit decision processes. Not because they’ve all ‘gone green’, but because this information that companies have to produce will help banks, investors, pension funds, etc. make better investment and credit decisions.

So it’s hardly surprising that sustainability experts and regulators, but also major investors, see climate risk as the most material business driver for banks in the coming years."

Sandra: "Sustainability in finance is in a change phase. It’s shifting from art to science, from voluntary to mandatory, and from the side lines of a company to its core, and thus the core of the finance role. Which means that as a Treasurer or CFO, you need to know what’s coming your way so you can adapt in time."

Photo from Left to right: Sandra Phlippen (Chief Economist) and Richard Kooloos (Director of Group Sustainability).