rethink sustainability

COVID-19 as an impetus for change

Our economic model is inefficient. It relies on fossil fuels, virgin newly-extracted raw materials and underutilised 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 further reason for change and an investment opportunity. We believe that our focus on sustainability as a core conviction has provided a strong defence to our portfolios during the current uncertainty. 

We believe 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.
 

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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.

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 the disruption at Chinese factories would affect 17,6001 different types of consumer goods even before the outbreak had reached the US. The decline in air and sea freight comes 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 almost 90% 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 and 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.

…we see cities as the engines of recovery and encourage investment in city resilience as the best way to avoid economic and climate disaster

The trend has started in cities around the globe. In Paris, Mayor Anne Hidalgo believes 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 - the number of trips longer than 3km doubled since February 10, 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, improve air pollution and provide more equitable transport options.


Moving from fast fashion

The pandemic has resulted in much reflection, not least for companies which must now look at their people as well as their profits and the future of the planet. 

In the fashion industry, there have been concerns about the treatment of workers and we expect ongoing pressure to improve labour rights and pay. 

Even before the crisis, there was a gradual shift towards sustainable goods, and this may accelerate, based on a research McKinsey collected from 6000 consumers across the UK, Germany, France and Spain. The results showed that an additional 16% would now seek products with sustainable credentials once shops reopen, 20% intend to reduce their overall spending for the rest of the year and 45% would look favorably upon companies that communicate with concern and purpose rather than prices and products.2
 

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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. 

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

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

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This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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