According to the AFME and PwC, for the first half of 2021, “a substantial number of companies may only have cash buffers for 2 to 6 months at normal rates of expenditure, and will therefore need to rely on further government intervention. The currently low number of insolvencies in the EU belies the fragile health of EU corporations. Many member states have temporarily introduced public sector financial support and changes to the insolvency regime in order to prevent companies from going bankrupt. Fragilities will be revealed as financial pressures amplify in 2021. Insolvencies are expected to rise alongside the eventual winding down of loan schemes, tax holidays, and other working capital relief.”
The same study reports that the European Commission estimates damage to EU corporate equity (from losses incurred) to be €0.7 to €1.2 trillion in 2020 and 2021. PwC estimates that total losses may be closer to €1 trillion, noting that estimated figures will likely rise if the crisis persists. The losses are a direct erosion of corporate capital that will need to be replaced. The sale and pace of replacement will in turn determine the speed of the recovery.
Businesses are currently facing lack of cash and capital. Either governments and lawmakers will focus on tackling the current situation without a vision of a post Covid-19 business world, or cash scarcity will create supposed conflicts between businesses so that some are cherrypicked over others.
But dollars are green, aren’t they?
Businesses already understand that sustainability is a driver of economic development. Take the European financial market as an example:
- The combined market cap of the top five European fossil fuel companies was smaller than that of the five largest renewable companies in 2020.
- Tesla is now more valuable than all auto OEMs combined.
- Based on market cap in 2020, eight of the world’s top 10 clean energy companies are in Europe.
- Europe accounts for nearly 70% of all global ESG mutual fund assets.
On a global scale, hydrogen alone presents a huge opportunity for growth. In 2020, Goldman Sachs forecasted that the hydrogen market will be worth $12 trillion by 2050. Europe has the most ambitious hydrogen strategy in the world, with a plan to convert almost two-thirds of its hydrogen consumption from fossil fuel to green sources by YEAR. Australia intends to export green hydrogen produced by an abundance of solar and wind energy. Chile expects to produce green energy with solar electricity from its north. China aims to put one million hydrogen vehicles on the road by 2030. Other projects are also being initiated in South Korea, Malaysia, Norway, and the USA, with the State of California planning to ban fossil fueled buses by 2040.
Sustainability id est growth
For the private sector, aiming for sustainability is aiming for growth. The Sustainable Development Goals 2030 Agenda set by the UN General Assembly in 2015 are innovative and relevant when compared to generic sustainability targets because they address:
- Universality: The principles are applicable to each and every nation, and to each and every sector.
- Integration: Targets are interconnected. It is not possible to act on one and ignore the other Synergies must be considered by decision makers.
- Transformation: Meeting targets would radically change ways of life and the ways in which economic activities are carried out.
Governments should mostly consider the integration criteria because it engages the entire system. For example, it is not necessary to cut the education budget (SDG4) in order to tackle other problems. The system would in fact collapse without such a fundamental piece of the puzzle.
The private sector and financial trends are leading the way. If you consider that Marco Alverà, CEO of Italian gas distribution company SNAM, a man who made his fortune working in fossil fuels, promotes a sustainable vision of the world in his latest book, then you understand how powerful and unstoppable this movement is.
Vade retro carbon
The Catholic Church is also becoming more vocal regarding the threat of carbon emissions. Pope Francis made clearly articulated this position in his first encyclical, Praise Be to You, a title invoking Saint Francis of Assisi who was closely connected to nature. According to Franca Giansoldati’s book, The Green Alphabet of Pope Francis, many initiatives were born of this papal letter. A pertinent example is the World Catholic Climate Movement, a coalition of more than 400 organizations from all continents that launched the Divest–Reinvest Program aimed at divesting investments from fossil fuels to more ethically, socially, and environmentally responsible companies. Other organizations and civil society are following suit by not investing in govies of states that do not respect human rights, or in shares of companies that jeopardize the environment. Such behavior is becoming more common among investors and is influencing the current momentum ESGs are having.
The future: Let us be brave
The Chinese ideogram for crisis is composed of two characters representing threat and opportunity. Climate change is a threat and the biodiversity of our planet is in danger. Without biodiversity there is no nature. Without nature, man dies. We have to change our behavior and start building the foundations for a sustainable world –– our common home –– for the future.
Bibliography
AFME Finance for Europe (2021, January). Recapitalising EU businesses post COVID-19. How equity and hybrid markets instruments can drive recovery.
Alverà, M. (2020). Rivoluzione idrogeno. La piccola molecola che può salvare il mondo. Mondadori.
Carbeck, J. (2021, January). Idrogeno Verde. Energia a zero anidride carbonica, in aggiunta all’eolico e al solare. Le Scienze, 72.
Giansoldati, F. (2019). L’alfabeto verde di Papa Francesco: salvare la terra e vivere felici. San Paolo Edizioni
Politecnico Milano 1863 School of Management & Intermonte (2020, December). Le strategie di comunicazione delle mid & small cap quotate su Borsa Italiana in ambito ESG: un’analisi di benchmarking. Quaderni di Ricerca Intermonte.