Nathan Cockrell, Co-Director of Global Research, Lazard Asset Management
Increasing opposition to globalisation
Government economic intervention in many countries during the pandemic has been unprecedented in speed and scale. This may continue at elevated levels while governments look to protect domestic economies. The implications of these spending decisions are likely to become more apparent over time. COVID-19 has heightened political attention on issues like employment and trade – issues that were already more prominent due to developments such as the US-China trade war and Brexit. We believe the current crisis may accelerate opposition to globalisation, which in turn could impact all of the underlying corporate strategies that rely upon interconnected supply chains, travel, and free trade. Governments and policymakers’ increasing domestic focus may also affect several sustainability issues.
Is a less global world more sustainable?
It’s a complicated question. Sustainability will likely both win and lose from a rise in deglobalisation. Human capital may gain from a more local focus on people and employment, but the loss of global coordination on issues such as climate change, pollution, and biodiversity degradation, is gravely concerning for environmental capital. Environmental challenges will require significant and ongoing work between governments to prevent future crises.
For example, the Montreal Protocol is one of the most effective and successful environmental treaties ever implemented. All 197 United Nations member states signed the treaty in 1987, showcasing a level of international cooperation on trade, compliance, and funding that would be difficult to repeat in a deglobalised world. Moreover, deglobalisation has actively reversed past progress. The 2017 US decision to withdraw from the 2015 Paris Accord presents a major risk to global efforts to address climate change at a crucial moment.
Social Inequalities Could Rise
COVID-19 has also highlighted the importance of protecting employee health and wellbeing. But what is out of sight is generally out of mind, and the furthest ends of international supply chains are often difficult to audit. Reshoring is likely to increase scrutiny on working conditions.
Furthermore, the measures taken to address COVID-19 have intensified social inequalities, a trend sometimes linked to globalisation. Pandemics require local populations to exercise collective responsibility for public health by adhering to government guidelines, but the impact of those guidelines has been distributed unequally. Individuals who could switch to remote working tended to be higher paid “white collar” workers, whereas jobs that require a physical presence tend to be lower paid. Furthermore, frontline medical staff and first responders have put their own health and that of their families at risk, often without any additional reward.
Hope for future challenges?
The fiscal response to COVID-19 will likely be a double-edged sword for sustainability. Post-pandemic stimulus measures will probably focus on investment in the energy transition away from fossil fuels. Green New Deals are being discussed in several countries. However, such investments will have to be paid for eventually, and this burden must be distributed sensitively to avoid social and political repercussions.
Perhaps the greatest positive for investors focused on sustainability has been the magnitude and scale of the policy response to COVID-19. Governments appear willing to spend big on averting a public health disaster, which could provide a test case for greater but slower-moving challenges ahead, such as climate change. However, should global co-operation continue to erode due to the rise of populism and the needs of the domestic political agenda, the ability to unite in the face of future adversity may diminish.
For more information on Lazard Asset Management’s approach to sustainable investing, please see our Sustainable Investment Report
 The Montreal Protocol on Substances that Deplete the Ozone Layer was signed in 1987 with the objective of banning CFC’s, HCFC’s and halon to address the hole in the Ozone layer.