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Covid-19 exposes weaknesses in country sustainability

Covid-19 exposes weaknesses in country sustainability

01-05-2020 | 市场观点
The coronavirus has highlighted how vulnerable a nation can become to a sudden crisis, RobecoSAM warns in a new report.
  • Max Schieler
    Max
    Schieler
    Senior Country Risk Specialist at RobecoSAM

Speed read

  • Covid-19 crisis puts country sustainability under new spotlight
  • Authoritarian regimes have fared no better than democracies
  • Best and worst countries for contracting Covid-19 are identified

Using data that feeds into the Country Sustainability Ranking (CSR), which analyses the environmental, social and governance (ESG) characteristics of 150 nations, the report shows how unprepared many countries were when the crisis reached a global scale in March.

The biannual CSR scores countries based on a wide range of metrics, including access to health care and the quality of governance, both of which have come to the fore in how countries have imposed lockdowns to stop the spread of the virus.

“The coronavirus has shaken the foundations of many countries with devastating effect,” says Max Schieler, author of the special report, ‘Covid-19 and ESG data: spotting the cracks before the quake.’ “But many of the structural weaknesses that have exacerbated the crisis, were already visibly evident in country ESG performance data.”

“A closer look reveals striking parallels between ESG scores and effective crisis management. Surprisingly, high scores on health system metrics proved insufficient in predicting a country’s coping capacity – proving that there are no magic indicators with full predictive power. Data must be analyzed collectively and comprehensively for patterns to surface and true root causes identified.”

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Surprising successes and failures

“Reflective of this, strong governance and institutional indicators were strongly correlated with a country’s coping capacity, helping explain the surprising success and failure of many countries in dealing with the crisis.”

“But strong governance should not be confused with absolute governance; authoritarian regimes have fared no better than Western democracies in combatting and controlling the coronavirus’ spread and impact,” he says.

The highest death tolls in the world have been in the US, Italy and Spain and the lowest in Japan, South Korea and Singapore. China, where the outbreak began in Wuhan in February, eventually managed to gain control of the situation after imposing strict lockdowns and quarantines, a practice that was later copied around the world.

The report provides an early indication of which countries have managed the crisis more successfully. Israel, Germany and South Korea have turned out to be the safest countries in which to contract Covid-19, while Italy, the US and the UK were the least safe. Italy was the first country to exceed China in terms of deaths before the US took on that grim record, exceeding 50,000 fatalities by 28 April.

The safest and least safe countries. Source: Deep Knowledge Group.

Poor US performance

The poor showing of the US, which as a wealthy democracy with a modern health care system would ordinarily have a high ESG ranking, should not come as a surprise, says Schieler.

“Unlike other countries, the Trump administration not only failed to take early action but also hampered efforts by maintaining a stance of denial and disregard for scientific evidence and dismissing the early warnings of health officials and other experts,” he says.

“President Trump’s recurrent attacks on both domestic and international institutions since his takeover of power is already reflected in declining US scores across several governance indicators.”

The CSR is primarily used by investors to look for sustainability risks that may not be reflected in a country’s debt rating or credit default swaps, making it invaluable for deciding whether to buy government bonds. It also provides top-down analysis for investment decisions regarding the equities or bonds of companies operating in each country.

Implications for investors

“For investors, the implications are clear – if ESG data can provide insights on a global pandemic, it can also be a powerful tool for understanding and mitigating geopolitical and country risks within an investment portfolio,” says Schieler.

“And as recent events this year (and last) have emphatically underscored, societal and geopolitical risks can be sweeping and destructive for countries, companies, and portfolios alike.”

“It has taken a crisis of epic proportions to expose to the world to what was already partially visible in country ESG data. We must hope the magnitude and sharpness of the initial shock and subsequent aftershocks will leave us deeply wounded but acutely sensitized to early warnings that can help avert future risks – worthy advice for citizen, countries, and investors.”

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