Written by Morgan Stanley Research
“It takes many good deeds to build a good reputation, and only one bad one to lose it,” Benjamin Franklin observed. Now, as the coronavirus pandemic creates a public-health and economic crisis of unprecedented proportions, investors will want to consider how this truism applies to market strategy.
“Corporate behavior in a time of crisis—both in how companies treat employees and customers, and their impact on society in a time of need—can have lasting implications, both positive and negative,” says Jessica Alsford, Head of Sustainability Research at Morgan Stanley. “These factors can be linked to long-term performance and returns.”
Companies don’t have easy answers for how they should balance the needs of employees, customers, investors and society. Moreover, the right actions can vary materially across sectors and be dictated by a range of factors: changes in product demand, government-mandated shutdowns, workforce flexibility, and the level of fiscal policy support, among others.
Even before the coronavirus outbreak, more investors were looking at companies through the lens of environmental, social and governance (ESG) practices. But now, corporate decisions on human capital, customers and society during the COVID-19 pandemic could carry greater weight. As companies face greater scrutiny during the crisis, ESG factors will now be a key layer of diligence in evaluating an investment.
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