Covid-19 Sustainability Insights: The tension over sustainability need and investment
Our recent research into the implications of the pandemic on sustainable business and ESG uncovered four key themes (click here for summarised findings), each with important implications and insights for our sector. In this article we look at the first one of these in more detail: The tension over sustainability need and investment.
A major concern for in-house sustainability professionals coming from our research is that key projects and programmes will be delayed due to current financial and resource constraints. Reductions in capital investment and the potential watering down of ambitions and plans are significant risks that teams are facing up to. And this in the knowledge that these can be ill-afforded given the urgency of issues such as climate change and biodiversity loss and the seismic shifts required – and in many cases already underway – in every economic sector to transform how they do business.
So while cashflow is king and access to Boards may be limited, here we use our findings to explore how sustainability teams can use this time most effectively to ensure critical long-term plans not only remain on track but are enhanced. We highlight three key areas below.
Reinforcing the case for sustainability
A lot has changed over the last three months. There is new, compelling evidence available and practitioners will play an increasingly key role in helping their business to understand how sustainability underpins long-term, commercial success and evolve their approach accordingly. This is a unique opportunity to reinforce and restate the case for sustainable business.
There are various considerations. A good starting point is how the pandemic has highlighted our collective vulnerability due to the systems we rely on – from Just-In-Time (JIT) to fossil fuels. How quickly this speeds up transitions that, in many cases, were already underway remains to be seen. However, when the likes of BP announce they are devaluing their assets because it predicts an acceleration in the transition to a low carbon economy as a result of the pandemic, it’s time to sit up and take notice. No company wants to be left behind or to be as exposed again – and a lack of investment now is storing up a raft of (potentially much more expensive) issues further down the line.
With financial restrictions currently in place for many businesses, attention also naturally turns to efficiencies. For sustainability teams this should mean capitalising on the short-term financial, environmental and social gains made over the last few months – reduced travel, better work-life balance and lower resource use for example. Effective engagement, measurement and review of what has worked well will help to ensure things don’t drift back to where they were as enforced restrictions are eased. If this period has shown what can be achieved, then this can and should be leveraged to reinforce the case for renewed action and greater ambition.
With companies operating in a uniquely challenging environment, resilience – the capacity to adapt, respond and recover quickly from difficulties – is also being fully tested. Businesses will be reflecting on how well (or otherwise) they have weathered these storms and what their sources of resilience are. Then attention must turn towards how resilience can be built in an increasingly uncertain world. For example:
- This situation has shown that those already taking proactive steps to understand and integrate the, often complex, needs of different stakeholders into the running of their business have been able to leverage strong and trusted relationships with employees, suppliers, partners and customers. This has been key in responding appropriately and collaboratively; adapting quickly and making better decisions in challenging times – critical for both business continuity and reputation.
- Similarly, businesses that already have full oversight over a wide range of environmental, social and governance (ESG) issues and have taken steps to manage and plan for any associated risks, have been far better equipped to deal with this crisis so far. This is a wake-up call for the strength and breadth of a company’s approach to ESG risk management system.
As hallmarks of a robust and strategic approach to sustainability, now is the time to highlight how this underpins resilience and to promote the unique skills of sustainability professionals to support the recovery.
In turn, it has been well-documented that investors will inevitably now focus on corporate resilience when making investment decisions – this means companies will increasingly have to demonstrate the resilience of their operations and business model in the face of key ESG risks such as climate change, biodiversity loss, labour and supply chain practices.
ESG performance has become a more important indicator than ever before, hitting the headlines for all the right reasons as the evidence builds for how businesses already prioritising sustainability have outperformed during this period of intense volatility. (Just one example of many – in May, BlackRock reported in ‘Sustainable Investing: Resilience amid uncertainty’ that 94% of a globally representative selection of widely-analysed sustainable indices outperformed their parent benchmarks in the first quarter.)
Sustainability teams should be gathering all this new evidence as it relates to their business, to reinforce and restate their case for renewed action and investment.
Reflecting, refocusing and repositioning priorities
By and large, companies we spoke to reported that the appetite for sustainability remains undiminished. The broad message is not to dial down on ambitions but to use the time to really think through priorities. There is certainty that issues such as climate change, social inequality and responsible supply chain will be back stronger than ever – with the pandemic having highlighted systemic weaknesses and employee, customer and investor interest continuing to soar.
However, it is highly likely in the near-term that financial and resource constraints will mean not everything can be achieved. In the context of this new operating environment, it will be more important than ever to pinpoint what really matters for the business. This may require a re-evaluation of which projects and initiatives will best support long-term goals and which short and even mid-term projects and plans can be shelved for now. Doubling down on these proposals will be crucial, ensuring that the investment case is rock solid and, as outlined above, bringing new evidence from the pandemic and its fallout to bear. Aligning to recognised frameworks and standards can also be helpful, particularly those that already have momentum and where there is pressure to conform – The Task Force on Climate-related Financial Disclosures (TCFD) was frequently referenced in this regard. Above all, teams should be aware aware of the critical importance of timing, using this period to get ready to submit renewed proposals and plans.
While for many businesses now might not be the right time to launch new goals and initiatives, important work should continue behind the scenes. Pausing projects and a slow-down in the day to day activity of sustainability is a valuable opportunity to reflect on objectives and plans – scrutinising their relevance and building in additional efficiencies where needed. Change is also a good time to focus on integration into the nuts and bolts of internal operations with fresh eyes – the mechanisms and levers that can be used to progress and embed sustainable business into the thinking and doing of the organisation. What has worked well to date, what has not and what still needs to be done?
Advocating for a green recovery
Businesses broadly agree that government intervention will be a key piece of the jigsaw. There are growing calls on governments to prioritise a green and socially just recovery, one that includes: channelling investment into clean technology, setting conditions for bailing out sectors and individual businesses, and involving the creation of green jobs and reskilling those most affected by the pandemic. Furthermore, with a backdrop of the UK hosting COP26 next year, this is not only gaining momentum but there are strong signs the UK government is leaning in this direction.
Leaders in organisations of all shapes and sizes are now proactively advocating for this – in the last two weeks, two letters signed by more than 300 UK business leaders have urged the UK Government to invest in a Covid-19 recovery that prioritises the environment, social justice and sustainable development. Many of these businesses are also working behind the scenes to support this, engaging with government to push this agenda and explore what is needed.
This represents a unique opportunity to accelerate the environmental and social shifts that are already underway. It is down to sustainability teams to use this momentum to engage leadership and support the business to do what it can to join these calls in the most proactive, collaborative and targeted way possible. In particular, working with other businesses both within and outside sectors to pinpoint and communicate where government policy and investment is most needed.