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The Owl of Minerva has spread its wings for a new economic future
IN THIS troubled time of profound global dislocation, the phrase "the Owl of Minerva spreads its wings only with the falling of the dusk" coined by the German philosopher Georg Hegel is worth dwelling on. By it, Hegel meant that we can only understand the meaning of a phase in history when it is coming, or has come, to an end.
As stock markets tumble in the face of the anticipated economic devastation wrought by the coronavirus, the capitalist system which has prevailed in its current form, arguably since the conclusion of World War II, appears threatened to its core. The Owl of Minerva has spread its wings and taken flight.
More to the point, the values and modus operandi which underpin global capital markets are being challenged as a new mindset emerges from the unfolding Covid-19 crisis.
In the face of the virus and its effects, from escalating and widespread deaths to the lockdown of entire countries, values of community and mutual support are swiftly replacing the often brutal isolationism and selfish economic expediency of the modern world - panic bulk buying notwithstanding.
This marks a shift that has been underway for some time, particularly in the face of natural disasters brought about by climate change and the devastation it has wrought on communities from the United Kingdom due to flooding to Australia and the US from wildfires, and Asian countries such as Singapore, Indonesia and the Philippines from haze pollution to extreme typhoons.
The emergence of a new mindset reflecting this shift in values has been embodied in the environmental, social and governance (ESG) movement, which aims to align investment in terms of sustainability, social impact and the interest of corporate stakeholders - most importantly, company workforces.
Nowhere was this value shift more in evidence than in last year's announcement from America's influential Business Roundtable that its member companies would be run not just in the interests of their shareholders, but of their stakeholders too.
And asset management giant BlackRock announced in January that all of its investments would be made according to their impact on sustainability, with Chairman Larry Fink stating that "society is increasingly looking to companies, both public and private, to address pressing social and economic issues".
In the coming months and beyond, it seems reasonable to assume there will be a myriad of pressing social and economic issues thanks to the effects of Covid-19. At the same time, it is highly likely that another round of severe financial stress waits in the wings in what is already being described as Global Financial Crisis Part 2.
Talk of a severe global recession abounds, and in the context of a rapidly deteriorating economic backdrop we can expect extensive government intervention in the form of fiscal and monetary stimulus. It has already been provided by the Federal Reserve, and fiscal packages of epic proportions have been unveiled by governments, from the EU to the UK to New Zealand.
But against these measures, fundamental questions are being asked about the ability of the global economy to go back to "business as usual".
The existing arrangement of short-termism within corporate culture, whereby equity prices hang on quarterly earnings reports and the profit/loss and dividend payout needs to be rethought. As does the very nature of what a company - by definition a collective of individuals engaged in the pursuit of a common goal - exists to achieve.
The pursuit of pure profit will be recalibrated as a goal and replaced with something which does not abjure profit but seeks it to be achieved alongside the greater good, in terms of sustainability, effects on climate change, the treatment of workers, executive pay and gender and sexual equality.
And in the approaching reality that will see severe damage done to the balance sheets of companies of all sizes and an attendant liquidity shortage, it behoves governments to step up and partner with companies that have explicit ESG mission statements.
That much was already the case, as ESG has begun to emerge as a crucial investment discipline, with that emergence speeding up in recent years thanks to concerns about global heating and the momentum among governments globally to meet the requirements of the Paris Climate Agreement.
Prior to the coronavirus crisis, ESG-focused funds had already pulled in US$70 billion of investment while conventional equity funds had been deserted to the tune of US$200 billion, according to data from EFPR.
In the context of the emerging crisis, ESG might seem the last of our worries. In truth, it will become a front-and-centre issue. The existing capitalist model will experience the questioning of its very fundamentals against the backdrop of severe underlying market turmoil and consequent economic hardship.
A move towards circular economies, in which the existing linear economy model whereby goods are made, used and disposed of, is replaced by one in which they are reused, shared, repaired, refurbished and recycled beckons.
A clear manifestation of the emergence of this new thinking at state level has been the realignment of New Zealand's economic policy under the premiership of Jacinda Ardern, according to which the orthodox slavish pursuit of GDP growth is replaced by policies that will address crucial issues such as rising suicide rates, homelessness, domestic violence and child poverty.
The Owl of Minerva is in flight as history moves to its next - and logical - phase.
- Fiona Reynolds is CEO of the Principles for Responsible Investment, a UN-supported non-government organisation which aims to foster the growth of environmental, social and governance (ESG) practice among global investors.