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COVID-19 and ESG data: spotting the cracks before the quake

COVID-19 and ESG data: spotting the cracks before the quake

28-04-2020 | Article
The Coronavirus has shaken the foundations of many countries with devastating effect. But many of the structural weaknesses that have exacerbated the crisis, were already visibly evident in country ESG performance data.
  • Max Schieler
    Max
    Schieler
    Senior SI Country Analyst

Speed read

  • Parallels between ESG scores and effective crisis management
  • Strong formal and informal institutional networks are key
  • Country ESG data can be a powerful tool for understanding and mitigating geopolitical and country risks

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.

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. 

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. 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.

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