Several trends have gathered pace as a result of the pandemic and one such is what goes under the broad umbrella term of "sustainability", argues the Swiss private bank.

The following article from Lombard Odier, the private bank, examines how COVID-19 has boosted the sustainability trend. The bank explains how the pandemic struck at the core of global production chains, where one estimate warned that the disruption at Chinese factories would affect 17,600 different types of consumer goods even before the outbreak had reached the US. Lombard Odier said it expects to see an increased focus on supply chain resilience and adaptability as industries start to recover. Companies that stay nimble or which are able to adapt will prove more resilient to future shocks and are more likely to gain market share as the world evolves.

In addition, the virus has affected the fashion industry, potentially accelerating the shift towards sustainable goods, away from fast fashion while clothing rental, sharing, repair and resale, grow in popularity. This reflects a concept of what is sometimes called the “circular economy”.

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Our economic model is inefficient. It relies on fossil fuels, virgin newly-extracted raw materials and under-used assets, disregarding the value of diversity and equality. 

In contrast, the Circular, Lean, Inclusive and Clean (CLIC™) economy is geared towards the creation of value, by rethinking the way we consume, produce and organise our lives. At Lombard Odier, we advocate the need for a more sustainable economic model. The transition is already underway but we see COVID-19 as providing a further reason for change and an investment opportunity. We believe that our focus on sustainability as a core conviction has provided a strong defence for our portfolios during the current uncertainty. 

We believe that resilient business models and adaptability will be key in addressing our current sustainability challenges. This allows us to identify the industries and companies that stand to outperform over the coming years.

The pandemic has forced many companies to adapt their business models and consumers to change their habits. While some of our choices and habits may revert to business-as-usual, the crisis offers us a chance to evaluate our previous lifestyles. Many are trying out new ways of exercising, consuming and travelling while customers are demanding more social and environmental responsibility from brands. Companies that stay nimble or are able to adapt will prove more resilient to future shocks and are more likely to gain market share as the world evolves.

Remaining resilient
COVID-19 struck at the core of global production chains - one estimate warned that the disruption at Chinese factories would affect 17,600 (1) different types of consumer goods, even before the outbreak had reached the US. The decline in air and sea freight came after they were already impacted by global trade tensions. 

The electronics manufacturing industry was particularly badly affected. Foxconn, a supplier of Apple, Intel and Sony, saw its profits fall by almost 90 per cent in the first quarter. Auto companies, which rely on just-in-time inventory management and the electric vehicle supply chain which relies heavily on Asia for supply, have seen significant short-term disruption to supply chains. 

As industries start to recover, we expect to see an increased focus on supply chain resilience and adaptability. Transportation disruption could lead European automakers to localise battery manufacturing at their electric vehicle assembly plants, even if production costs are higher in the region. 
 

Shifting supply
As lockdowns ease, we see cities as the engines of recovery. We encourage investment in city resilience as the best way to avoid economic and climate disaster.

To achieve both cleaner lifestyles and a leaner transport system, we must shift towards more active and shared mobility. Giving less space to cars allows more space for residential buildings and parks.

The trend has started in cities around the globe. In Paris, Mayor Anne Hidalgo believes that locals should be able to shop, work and enjoy their time off within a 15-minute walk or bike ride. In Milan, 22 miles of roads have been turned into walking and cycling routes. In Bogotá, 75 miles of streets are now free of motorised transport. The crisis has seen a resurgence in bike-sharing in China wirh the number of trips longer than 3 km having doubled since 10 February 2020. 

E-bikes, e-scooters and carpooling are offering a new, shared way of travelling. We expect Mobility-as-a-Service (MaaS) to be encouraged by many cities globally as a way to ease congestion, reduce air pollution and provide more equitable transport options.

Moving from fast fashion
Since the pandemic people are questioning accepted norms, not least companies which must now consider their staff as well as their profits, and their impact on the planet. 

In the fashion industry, in particular, the treatment of workers, the need to improve their labour rights and pay has been highlighted.

Even before the crisis, there was a gradual shift towards sustainable goods and, based on a research McKinsey collected from 6000 consumers across the UK, Germany, France and Spain, this might accelerate. The results showed that an additional 16 per cent of consumers would now seek products with sustainable credentials once shops reopen. Twenty per cent intended to reduce their overall spending for the rest of the year and 45 per cent would look favourably on companies that communicate with concern and purpose rather than prices and products. (2)           

The most socially-conscious apparel and fashion companies put their assets to good use in the crisis, some turning over their factories to make face masks or hand sanitiser, or donating products and services to healthcare workers. Clothing rental, sharing, repair and resale are all growing in popularity, with digital technologies opening up new potential, as demonstrated by the appearance of rental platforms like Onloan.

One of the concepts of the circular economy is a focus away from disposable, short-lived products and a transition to longer-lived, higher-quality goods. The CLIC™ economy requires material products – but such products would be limited to those that are renewable, recyclable, necessary and generate value throughout their lifecycle. It is the brands that have used sustainability as a marketing tool, rather than integral to their processes, which are likely to halt progress in this area as a result of the crisis. 

A chance to think
The Sustainability Revolution requires a rethink of all aspects of our economy, including not only the way we produce, but the reasons why – with consumer choices and habits at the heart of this question. The best companies will anticipate this revolution and see it as their corporate social responsibility to produce goods and services aligned with the “new normal.”

1 Moeller, Jon (2020) as cited by Allen, Andrew (February 21, 2020). P&G warns 17,600 products possibly hit by coronavirus. The Chartered Institute of Procurement and Supply. Accessed at https://www.cips.org/supply-management/news/2020/february/pg-warns-17600-products-possibly-hit-by-coronavirus

2 https://www.forbes.com/sites/brookerobertsislam/2020/04/21/social-sustainability-overstock-and-greenwashing-how-covid-19-is-changing-the-fashion-industry/#61d865e3582d