Triple C: A Reflection on Corona, Climate, and Constructiveness
The capital markets and our daily lives are currently dominated by news around the coronavirus. You may have read and heard a lot about the virus itself, the risks to our health, as well as the impacts on society and the economy.
I do not want to add another forecast and leave this to the experts in virology and economics. Let’s hope for a limited number of severe courses of the disease, successes in the containment of the spreading, and no doom scenario outcome for the economy and capital markets. Fingers crossed.
Although there is no way to ignore the virus when looking at the capital markets, let’s pause for a second and think about one of the central topics before covid-19 gained center stage: Around four weeks ago, the financial industry was clearly very busy with climate change and environmentally-friendly investing – the “E” in “ESG”. Back then, I could hardly attend a client meeting without talking about ESG. This has been replaced by the coronavirus as the ever-present topic #1 in each and every conversation.
Besides all the horrible developments and scenarios, the coronavirus might do something good to our planet Earth. Past sky pictures of Wuhan clearly showed smog. Recent pictures show a blue sky. The Centre for Research on Energy and Clean Air stated that China’s coronavirus-related slowdown has led to a fall in carbon dioxide emissions by an estimated 200 million tons in the four weeks to the 1st of March – equivalent to UK’s carbon emissions over six months, or about the same amount of CO2 the Netherlands or Ukraine emit per year. A cleaner environment may also result from unexpected virus-related developments.
Other examples are the travel restrictions imposed by companies, alongside with reduced private travelling. Let me add two personal examples: First, my family vacation over the Easter holidays will be a local one rather than flying to Spain, and the discussion about where to spend the Summer break is all around potential restrictions, too. Second, I was planning to be in the US right now, but instead, I canceled the flight and stayed in Frankfurt. I am sure of not being the only one who is affected in such ways.
Anecdotal and individual evidences will most likely add up to a positive global impact on climate. The current situation may – and I am sure, will – have positive repercussions and give our mother nature time to breathe. On top of that, a lot of companies seem very busy implementing business continuation measures. Whole offices with thousands of employees stay closed if corona cases have been detected. While those measures are well-considered and necessary, they add one particular value to all the stressed-out workhorses among us. They force us to take a break from our hectic, over-optimized modern work attitudes and lifestyles.
I do not want to neglect in any way the graveness of the virus – especially for those that are directly affected and with the many, many uncertainties around. But I also want to add another perspective: The situation requires us to downshift and, as a side effect, our planet gets a little break. Maybe this is a good time to reflect some of our habits. Maybe it is worth considering keeping some of the behaviors we are forced to right now for when things hopefully normalize. Maybe we realize – after the covid-19 situation is fully under control – that it is a good thing to help the nature to become greener by travelling less and adjusting our lifestyles towards more sustainable ones.
Just imagine how significant would have been the outcry three months ago by imposing a “climate tax” via, for example, potential restrictions on air travel? Now we have to go through with travel restrictions in order to stop the spread of the virus. This reduction in travel clearly generates distress in a set of companies. Can we attribute Flybe’s bankruptcy solely to the coronavirus? Possibly not, as the airline sector is one that has been broadly unprofitable due to tough competition and other headwinds independent of the virus. Like Flybe, many companies have been kept afloat due to cheap credit stemmed from low interest rates.
Companies that likely would have been subject to a constructive destruction in a world with historically more normal interest rate levels, and that only just survived due to very low interest rates, are having trouble handling reduced cashflows from operations now. Some economists are talking about “zombie companies”. On the other side, a healthy company with a solid balance sheet should still be able to survive the reduced demand that has been observed so far.
You may be familiar with the following: In his 1959 and 1960 campaign speeches, John F. Kennedy said that “in the Chinese language, the word “crisis” is composed of two characters, one representing danger and the other, opportunity”. Every cloud has a silver lining. Even though the coronavirus outbreak may bring along a colossal amount of suffering, a crisis may be the right time to reflect on certain things that we haven’t thought of enough during the past. If we simplify complexity for a moment and allow ourselves to disregard the catastrophic effects on humankind: Let’s rethink some of our behavior and routines after a hopeful return to normality soon… and then, let’s have a glass of Triple C, my favorite red wine from Chile.
Hang in there, and most importantly: Stay healthy!
Timo Pfeiffer, Chief Markets Officer