The last global crisis didn’t change the world. Will this one?

Many have drawn parallels between the economic fallout from the COVID-19 pandemic and the 2008 financial crisis. We explore how this one is far more likely to have a lasting impact on changing the nature of business as we know it – solidifying values-based businesses, strengthening supply chains, and driving home the importance of preparedness and adaptability.

In early 2005, the then-United Nations Secretary-General Kofi Annan invited a group of the world’s largest institutional investors to start building environmental, social and governance (“ESG”) considerations into capital markets. This was the genesis of the UN Principles for Responsible Investment (“PRI”) which launched in 2006. When the financial crisis hit in 2008 the UN PRI was still in its infancy. There was, then, considerable optimism that the meltdown would catalyse a fundamental shift away from shareholder capitalism, and towards stakeholder capitalism.

Today there are 3,000 signatories to the PRI. Many see this as an encouraging barometer for how responsible investment – well-governed capital accountable for the impact of businesses on wider society and the environment – has grown substantially in popularity over the years.

Despite this progress it would be a challenge to say that capital markets have been fundamentally transformed. Sustainable funds, while on an uptrend, still accounted for less than 1% of the mutual and exchange-traded funds in the US at the end of 2019, and there remains some scepticism around the measurable upside of incorporating environmental, social and governance factors into investment decisions.

There is reason to believe, however, that this crisis will substantially alter the way that capital will behave in the long run.


COVID-19 is a truly global crisis, and the world is paying attention

The effects of the 2008 financial meltdown, while vast, affected a relatively narrow range of of industries, with just five sectors (manufacturing, construction, wholesale and retail trade, transportation and mining) accounting for about 80% of the 20 million jobs lost in the 18 months following October 2008. By contrast, while the coronavirus arrived in different parts of the world at different times, there is a striking universality to its devastating effects on the economy, and on life as we know it. Governments have shifted into overdrive to keep their populations safe and livelihoods afloat. In ASEAN, Indonesia announced a US$25bn stimulus package, and Singapore dipped into its reserves for an unprecedented fiscal boost of US$66bn – equivalent to 20% of its GDP. Despite similar efforts across the region, unemployment has inevitably spiked. Thailand, with its high dependence on global tourism, might see a doubling of its unemployment rate; and unemployment in Vietnam has risen to a five-year high.

The effect on lives has been notably unequal. Many who have lost their jobs, been furloughed, or otherwise seen substantial disruptions to their work have been those at the margins – the International Labour Organization estimates that 1.6 billion workers in the informal economy are in immediate danger of losing their livelihoods. It also comes as no surprise that the virus has disproportionately affected communities with poor access to healthcare; and as many as 60 million across the globe could be pushed into extreme poverty this year. COVID-19 is exacerbating existing patterns of inequality and triggering social unrest. Whilst limited in ASEAN, protests by vulnerable communities in Brazil and India could be early harbingers of similar pushbacks against institutions that fail to respond equitably. This pandemic is bringing the “S” in “ESG” to the forefront and solving for inequality is a crucial step towards resilient economies, stable political climates, and better risk-adjusted returns in the long run.

But countries are in survival mode. With the pressing need to balance safe distancing with economic activity, it comes as no surprise that potential short-term negative impacts of any measures on society, or the environment, are being put on the back burner. Earlier this month, President Trump signed an order to waive environmental reviews for key projects. Some Indian state governments have drawn ire for substantially relaxing labour laws guaranteeing minimum wage, workplace safety and employment benefits in a bid to boost their economies.

Fortunately, however, many are keeping Dwight D.’s Eisenhower Matrix in mind. As the world adjusts to COVID-19, businesses are turning their attention to actions that are less urgent but no less important. These include ensuring fair treatment and safety for their employees, suppliers, and other stakeholders, building up emergency preparedness, and increasing supply chain visibility.

Governments are also stepping in to reinforce social and environmental contracts. The Singapore Parliament passed a law requiring landlords to provide struggling small and medium enterprises (SMEs) with rental waivers. The UN Human Rights Office for Southeast Asia has commended the Thai government for taking measures to assist migrant workers in the country, including ensuring free medical care in public hospitals. Germany has just unveiled a US$145bn recovery budget that focuses on climate-friendly industries and technologies including electric vehicles and renewable energy.

Around the world, there have been rising calls for us to build back better.


A focus on ESG could fundamentally change how businesses operate in ASEAN

The pandemic has thrust some niche sectors into focus. Telehealth, remote work and last-mile delivery services are scrambling to meet surges in demand. The jury is out on which sectors will retain their popularity as economies recover from the virus, but what is certain is that the way in which businesses function will see lasting change.

One, corporations must run on strong values that exhibit a commitment to both internal and external stakeholders. It is no longer sufficient for businesses to dole out donations as part of their corporate social responsibility efforts without integrating the same principles into the way in which they operate. Amazon’s substantial donations to COVID relief have not shielded the tech giant from protests by employees and the public against its failure to provide adequate work safety measures. On the other hand, Airbnb, a certified B Corp, has garnered international praise for its promise to issue full refunds to customers as well as its transparency in communicating layoffs to its staff.

Source: Business Insider, 30 Apr 2020

In ASEAN, Gojek, Southeast Asia’s leading on-demand, multi-service tech platform providing transport, payments, food delivery and other services, developed a support fund to help drivers and merchants with income stability, and facilitated income protection coverage. It also partnered with Halodoc, one of Indonesia’s largest health-tech platforms, to provide free drive-through rapid COVID testing for Jakartans in April. At Pathao, a nationwide digital platform and transportation company in Bangladesh, C-suite executives took zero pay in solidarity with employee pay-cuts that were structured to affect lowest-paid employees the least.

Two, companies that establish strong supply chain management and value relationships with their suppliers, will be more resilient in the long-term than those that do not. In Bangladesh, a row has erupted between the textile industry – the country’s largest export earner – and Western clothing retailers which are retreating from previous commitments. The ways in which businesses respond to supply chain disruptions will influence relationships and ultimately supply chain integrity and reliability in the long run. Furthermore, the shift away from global supply chains is likely to fuel greater regionalisation across the world and accelerate integration within ASEAN and Asia, bringing supply chains closer to home and throwing the need for supply chain visibility into starker relief.

Three, businesses are now more aware than ever of the need to be prepared – not just for pandemics, but for the potentially devastating effects of climate change. Business continuity plans will likely be developed with more thought, beyond mere desktop exercises, and companies are beginning to understand the need for scenario-planning and building in adaptability into their supply chains and workforces for resilience in the face of sustainability-related disruptions. For instance – what happens to a business if regulations on carbon emissions or plastics were to kick in? How does a team respond to a food safety crisis or implement a shift away from a supplier with unethical labour practices?


The implications for investors

Those who previously thought of ESG as a mere PR exercise are increasingly finding the trend towards ESG investing supported by market evidence. In the first quarter of 2020, BlackRock observed “better risk-adjusted performance across sustainable products globally, with 94 per cent of a globally-representative selection of widely-analysed sustainable indices outperforming their parent benchmarks”, likely powered by material factors including employee satisfaction, strength of customer relations, and board effectiveness. This is not a recent phenomenon either – Morningstar reported a consistent outperformance of sustainable funds vis-à-vis their peers over a five-year period that could not be explained by industry weightings – less energy and more technology – alone.

More investors are also beginning to advocate for ESG integration. In May, a group of institutional investors and service providers with over US$9tn in assets under management issued an investor statement urging businesses to act responsibly and ethically in response to COVID.

We as venture capitalists pride ourselves on being able to predict what will be relevant tomorrow, and therefore what can be done better today. There exists a huge opportunity for us to lead the way in supporting businesses with a strong sense of purpose and a commitment to building resilience for the long term.

It will take years for the world to fully understand the significance of 2020. But what we can be sure of is that this is a global turning point – and investors have a critical part to play in where we go from here.




At Openspace, we hold a deep commitment to responsible investing and believe this is consistent with driving better investment decisions and superior returns for our limited partners. To this end we have recently implemented an internal policy integrating ESG assessment and risk management into each stage of our investment process and are applying to join as signatory to the UN PRI. We also continue to seek out, invest in and help build companies that deliver important social and environmental outcomes and make ESG and Impact important considerations as we help them grow. We believe this is consistent with our vision to look towards the next Openspace for investment sectors and opportunities and is consistent with driving best possible returns for our limited partners.

Find more information on our policies on ESG and Impact here.