ESG 5-Point Digest

ESG 5-Point Digest

April 11th, 2022 | Edition 1

Good Morning,

We are excited to introduce our ESG 5-Point Digest, which comes out at the top of every week.

This week all eyes are on France, Shanghai is in a crisis, and prices are on the rise globally.

Thanks for reading, and send us your thoughts on LinkedIn. See you next week.

– Maryam





Le sigh: France threatens to elect a fascist, again
It’s that time every five years when the whole world gets to wonder if France is going to elect a fascist to the presidency. It is very nearly a national tradition at this point.

At the beginning of this election cycle, Emmanuel Macron was in a remarkably strong position, bolstered by a wave of national unity as a result of Vladimir Putin’s invasion of Ukraine. He was inching towards the unique position of being the first French President to be re-elected while holding on to control of the parliament which even Jacques Chirac and De Gaulle didn’t achieve.

But as time has gone on, the impact of the war on energy prices and the cost of living has empowered Far-right candidate Marine Le Pen who has deftly refashioned her father Jean Marie Le Pen’s traditional nationalist far-right party into a populist movement of bread and butter issues. Her popularity is the strongest it’s ever been, and in the polls the two candidates are within the margin of error, the leftist candidate Jean Luc Melenchon behind them.

So why does France toy with electing a fascist each election cycle? France is a nation that once held strong geopolitical influence in diplomacy and the global economy. One might even accuse them of having outsize influence because of their position at the Security Council. Rivaling the U.K. and the US economies in recent years they have been slowly eclipsed by the rising BRIC economies leaving French people with a Gallic gloominess about what they perceive as their declining role in the world. That makes a candidate like Le Pen attractive. For sure the French have a pessimistic psyche by nature but with the global economic recovery post-pandemic and the rising cost of living caused by Ukraine, they have something tangible to feed that grumpiness for once. Surprisingly, what the Russian leader does next could tip the scales for the candidates.



Shanghai in crisis
Shanghai, a population of 24 million, is entering its 3rd week of extreme lockdown, this is after almost a month of on and off lockdowns (of around 48 hours each time) so the city could test its entire population block by block after the nation’s biggest flare-up of COVID since the start of the pandemic. 131,000+ cases have been detected in Shanghai since March 31, and more than 21,000 new infections were recorded on Friday alone.

Patience in the nation’s most important economic center is wearing thin: in a city lined with Luxury retailers and parked supercars, residents have been filmed screaming from their windows that they’re running out of food and starving.

Main points:

  • The pandemic is more than two years old and while the population boasts high vaccination rates, their locally made vaccine have proven ineffective with the virus.
  • This lockdown of a global city and its critical shipping hub is already sending waves of issues throughout the global supply chain and contributing to a global economic downturn, we will see the effects of this on American earnings reports.
  • The extended lockdown is testing patience with the Beijing government’s “Zero Covid” approach—Shanghai had been handling new cases largely with granular isolated lockdown measures, but when numbers soared Beijing stepped in with a heavy-handed protocol that included carting off tens of thousands of residents to poorly equipped makeshift camps in warehouses and exhibition centers, separating children from parents when they tested positive, and in one known case even publicly killing a dog within minutes of it being separated from its owner who tested positive and was in the process of being taken to a camp.
  • Additionally, measures to curb the spread have meant that delivery services and grocery stores and their staff are locked down as well. Angry residents are posting on Chinese and international social media about shortages of food and essential goods, people with medical conditions are reporting beign turned away from hospital doors including one woman whose toddler suffered a fractured skull from a fall. Some locked down areas are even protesting in their housing complexes, chanting  “we want to eat” and “we want freedom”. Many of these types of uploaded videos are swiftly taken down by the tech company Tencent which owns and operates the super-app WeChat.

As Beijing did in 2020, they are reporting no death from this current wave, leaving themselves vulnerable to criticism that their measures are hurting more than they are helping.



EU/UK moves on Ukraine
British Prime Minister Boris Johnson made an unannounced call on Ukrainian President Volodymyr Zelensky in person, in what a Downing Street Spokesperson called “a show of solidarity with the Ukrainian people.”

The trip is viewed by many as another effort by the UK to independently maneuver its global relationships apart from the European Union. Johnson traveled on the heels of a trip by European Commission President Ursula von der Leyen who arrived the day before with a complete EU delegation of senior European Commission, the first officials since Russia’s invasion started.

Not to be outdone, the UK has promised further economic support, taking the total UK loan guarantees to £770m as well as £100m of weapons for the country including Starstreak anti-aircraft missiles and 800 anti-tank missiles.

Von der Leyen started her trip symbolically in the shattered city of Bucha, where the US is accusing Russia of having committed war crimes. And she arrived bearing news of something Ukraine wants more than guns or money: news that the EU will fast track Ukraine’s membership.

Putin is likely losing sleep over the EU’s move more than the UK’s, the bloc has promised to expand sanctions to further isolate Russia, and EU member Finland is about to join NATO (despite the Premier Sanna Marin’s reluctance merely three months ago) instantly doubling the alliance’s border with Russia.



Chaos at the pump and on the shelves
Food prices soared 12.6% between February and March from North America to North Africa to their highest levels on record. The war in Ukraine is disrupting shipments of critical supplies like wheat and vegetable oils from the crucial Black Sea breadbasket region.

The lockdowns in China (see above) are also contributing to higher prices at the supermarket.

Around the world, higher food prices are already leading to social unrest in lower-income countries, where food accounts for a much larger share of spending. In sub-Saharan Africa, food makes up 40% of consumer spending, compared to 17% in higher-income economies.



An economic “perfect storm”
This last section is not to be outdone. It comes last because you need to understand the issues above to see where this is all heading: a serious downturn caused by a toxic combination of high energy costs, omicron disrupting the Chinese economy, and US inflation.

The economy in the United States is buckling: the annual rate of consumer price inflation is 7.9% and hourly wages are 5.6% higher than they were when the COVID rebound began. America has jobs but no workers—twice as many to be exact. The Americans who left the labour force after the pandemic struck did not return the way the Central Bankers expected and hoped. When they are returning it’s only after negotiating hard for wage improvements to mitigate rising prices and eroding living standards. Major victories for agriculture workers preceded major victories for Amazon warehouse workers that preceded major victories for food service workers. The US economy will struggle to back to work without making dramatic changes to benefits, pay, and health and safety for workers.

These strains on the US economy added to strains caused by China’s real-time output lowering by 7.1% added to strains caused by higher energy and food prices have created a perfect storm for the global economy. Sadly, this threat of recession was entirely avoidable: the Federal Reserve was overly optimistic about the mood of American workers amid chants of “we are all in this together”, China’s difficulty in suppressing Omicron was widely predicted and proven methods have yet to be deployed in response to the crisis, and finally: Europe decidedly put all it’s natural gas eggs in one Russian basket. Hindsight will be little consolation in this case.

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