One flip side of the COVID-19 emergency has been an intense scrutiny by investors on private companies doing good deeds. Is a company paying extra to employees required to work on-site or with the public (“hazard pay”)? Is it providing enough protective gear for workers or time off to take care of children at home?
Beyond this concern for the treatment of workers, investors are eyeing the long-term value in a firm’s response to the larger social needs of the coronavirus crisis. Are executives trying to keep their suppliers afloat? Did a manufacturer offer to make protective equipment? Have big companies resisted taking rescue money from government? Did a corporation cancel dividends and cut executive pay?
And as public debt rises with massive government spending, the financial firm Morgan Stanley offers this prediction: “We expect investors to require [corporations] to demonstrate they are paying their fair share of taxes.”
The public health crisis has “upended how companies operate,” writes Larry Fink, chairman and CEO of BlackRock, in a letter to the investment firm’s shareholders. “In my 44 years in finance, I have never experienced anything like this.”
One indicator of the shift is that both corporations and public institutions are issuing more “social bonds” to raise money in the struggle against COVID-19. The Wall Street firm Goldman Sachs has led more than $15 billion of COVID-related bonds globally. Such capital will be used to help countries recover from the loss of business, build hospitals, and address other needs.
According to Bloomberg News, “green bonds” that support business practices curbing climate change have dipped while social bonds are increasing. More social bonds have been issued so far in 2020 than in all of 2019. “The stage is now set for social bonds to move from a niche solution to a mainstream one,” according to Foreign Policy magazine.
Private firms have long provided goods and services to the public while creating jobs, but usually to deliver a profit. Yet financial markets are now savvier in seeing whether a company’s response to societal needs, such as a health crisis or global warming, can add to the bottom line. With each crisis, concepts of what is the public good are expanding. Private capital is catching up.