Build back better: investing after Coronavirus

Article written by Miranda Stokkingreef, CEO of ABN AMRO Asset Based Finance.

The human costs of Covid-19 have been painful; the long-term implications for health are still poorly understood. But limits to human activity during lockdown have also had a positive impact on the environment. Reduced industrial output, road usage and air travel have seen pollution and CO2 emissions fall. More people are cycling, walking and working from home.

The message for businesses is clear: how can we recover economically from the pandemic while preserving some of the benefits from the changes in our behaviour?

There is clearly a big appetite for a greener approach to Covid-19 recovery efforts, which many people – from US Presidential Candidate Joe Biden and UK Prime Minister Boris Johnson, to the UN and the London School of Economics – have called ‘build back better’.

A YouGov survey for the Royal Society of Arts in the UK, for example, showed only 9% of Britons wanted to return to pre-pandemic norms – with more than half citing cleaner air as a factor. In the Netherlands, 170 academics issued a manifesto for economic change after the crisis that stressed the need for investment in new approaches; a coalition of Dutch businesses pledged support to make sustainability a cornerstone of Covid-19 recovery measures.

Valérie Pécresse, president of the Île-de-France, told one French newspaper. Paris mayor Anne Hildago has widened a network of cycle lanes, with dedicated routes doubled to 650km. And in Germany, Chancellor Angela Merkel wants EU Coronavirus recovery funding to invest in more sustainable, climate-friendly initiatives; many Germany businesses agree.

Build on existing efforts

We already knew that climate change has financial consequences. According to Morgan Stanley, just 16 weather and climate disasters in the US in 2017 cost $309bn, with global losses from natural disasters over the past decade amounting to almost $3trn. That makes a greener response to re-establishing economic growth the financially responsible choice.

Rebuilding with climate objectives in mind makes sense at a company level, too. Before the crisis, Black Rock CEO Larry Fink called on portfolio CEOs to prioritise sustainability. In May, he added: “During the past few months, we have seen that… strong sustainability characteristics have been essential to helping companies weather the crisis.”

We at ABN AMRO are truly crazy for clients and so when the pandemic crisis hit our first thought was with them and how we could best support their needs. The flexible attitude of our teams and the trust we place in each other has resulted in enormous productivity and agility as we collaborate to do just that. We’re proud of the way our international community continues to connect digitally – working remotely from home, and without the need of boarding airplanes. The lessons from these new behaviours are already framing our thinking about the return to a ‘new normal’.

A million small steps

In practical terms, businesses can look at small changes, such as not printing reports even when “free” office printers are available again. In the ABN AMRO Lease and Commercial Finance office at Hayward’s Heath in the UK, monthly paper usage fell from the equivalent of 325kg of CO2 emissions in February to 183kg March – and just 25kg in April. Multiply that across all the countries where we operate, and the positive effect on emissions mounts up.

Bigger changes forced by the lockdown might also turn out to be beneficial. Fewer plane journeys, for example: Euromoney interviewed one banker who says it’s revolutionising his work: “I’ve had five meetings this week that would have taken five months to organize before,” he said.

And new perspectives on financial management could make a big difference. Businesses desperate for working capital have had to reprioritise their capital expenditure during the lockdown. “Doing so will operationally and financially benefit both them and – once they can continue their projects – the broader economy,” says McKinsey.

The question is: what will the long-term picture look like? As we consider the work policies and the investments we must make to re-enter a ‘new normal’, how do we avoid going back to unsustainable ways? Could business investment plans over the next 18 months do more for climate change than even Greta Thunberg could dream?

Investing for the future

Rethinking investment does seem to be a key to unlock this better rebuilding. Again, there are both small practical steps to take, as well as bigger strategies.

For example, installing LED lighting in business premises or investing in technology infrastructure to support non-commuting home-workers both have immediate operational benefits, as well as supporting a more sustainable future. A bigger decision might be switching your commercial vehicle fleet to electric or hydrogen-powered vehicles.

Leasing can play a big part here. It allows businesses to make an immediate and tangible investment in green initiatives in the post-pandemic world without a huge capital outlay. One example is the roll-out of solar panels – where we have a long track record, including financing 9,000 panels for the Nij Smellinghe hospital in the Netherlands.

Equally important, asset-based solutions such as invoice finance or inventory finance can create working capital headroom. This helps businesses feel more secure about their cash runway, freeing them up to invest in equipment and business practices that will both adapt to a post-pandemic world and be more sustainable for the environment.

Strategic change

Can we devise sustainable business models that address climate and wider environmental issues without stifling growth? Even before Covid-19, plenty of people thought we could.

The ‘circular economy’ –  products and services designed to be reused or recycled at the end of their life – is a great example. (ABN AMRO was promoting the circular economy as early as 2016. But it’s more important now than ever.) Our leasing and commercial finance products can help companies deliver products to business customers and consumers that have a lower total cost of ownership and a longer lifespan, but might seem more expensive to buy up-front. Why buy a cheap, polluting piece of machinery that lasts three years when you can lease a much better, more sustainable, machine that lasts ten years… for a lower annual cost?

We have always said that leasing is a great way to go green. And when most businesses are looking to recover from the lockdown, alternative financing options are an ideal solution to both economic robustness and a ‘level up’ approach to sustainability.

The climate challenge is still huge. The lockdown-related reduction in CO2 emissions in 2020 needs to be repeated every year until 2050 to keep global warming below 1.5°C. We need smart investment in new ways of working, new technologies and sustainable infrastructure. Our mission is to become your financial wingman on that journey, making crucial investments possible as we build back better.