How is Covid-19 affecting corporate sustainability and ESG – research findings
Much has already been written about the significant challenges posed by the current situation and how businesses are responding and adapting. There are stellar examples of companies putting the interests of people, suppliers, partners and communities first, just as there are horror stories of companies that have acted less honourably. Make no mistake, reputations are being won and lost, perhaps permanently.
At the same time, many links have been drawn between the pandemic and sustainability. These range from our general disregard of the natural environment increasing the risk of pandemics and the most vulnerable in our society being disproportionately affected, to our renewed appreciation of nature and increasing calls on governments to prioritise a green and socially just recovery.
Against this backdrop, we undertook a small research project with a cross-section of our clients representing a range of sectors including financial services, construction, aviation, manufacturing, professional services and retail. We wanted to understand how corporate sustainability has faired through the crisis, what the short and long term outlook is and what we can learn as businesses start to plan for recovery.
Here we summarise the four key themes that emerged. In a series of articles to follow, we will explore each theme in more depth.
1. The tension over sustainability need and investment
There won’t be significant change in terms of longer-term commitments because banks, lenders, investors and customers will continue to ask the questions of us.
There is widespread concern that, with cashflow and financial constraints top of mind, larger-scale capital expenditure on sustainability projects and programmes – the kind of investment needed to accelerate the transition to a net zero economy for example – may be delayed. Sustainability teams are using this time to reflect on, refocus and reposition priorities, aware of the critical importance of timing for submitting renewed proposals and plans.
There is confidence however that the longer-term view on sustainability will not change, and an awareness that new evidence offers a big opportunity to build and restate the case for sustainability: a groundswell of interest in ESG for example, with increasing investor interest in how it underpins business resilience and performance, especially during uncertain times. And specifically, the need to build resilience to future crises.
I’m worried we’re entering a period such as 2008 when climate change was so important, but we hit the recession and it was put on the back burner for 5 years. We lost those 5 years in addressing it. There is a chance of this happening but less of a risk as in 2008.
As a result, companies know they can ill-afford to lose ground in tackling issues like climate change and decarbonising their operations. Many are pinning hopes on, and supporting the case for, government intervention to keep sustainability moving despite the economic challenges. In the meantime, teams remain pragmatic. They understand that they must bide their time, that access to leadership and business units is currently and understandably limited, but they know they need to be ready with the right advice and the right proposals at the right time.
2. The pandemic has supercharged the social side of sustainability
The exec team now fully grasps things like employee wellbeing and putting employees first – they understand it’s the single best way to get results as a business.
For the most part the treatment of employees has come first, with decisions designed to protect jobs and income and ensure safety and wellbeing amid drastically different economic conditions and ways of working. Customers come a close second with short-term responses and policies designed to protect vulnerable customers, in particular, prioritised. But there is also widespread recognition that the pandemic has disproportionately affected certain sections of the customer base – perhaps for the foreseeable future – and companies are grappling with these changes to understand how they will affect the nature of customer relationships in longer-term.
We’re looking at how to deliver our programmes virtually this year and we’re really excited as we think it will help us to increase and broaden our reach.
Social programmes have come to the fore and played an important role. We identified significant advantages for companies with established social programmes and partnerships, giving them the ability to leverage strong networks and collaborative working to respond to the crisis quickly and in meaningful ways. For these companies, the focus has now shifted to how they can continue delivering programmes and supporting partners in new and different ways as well as working with partners to understand how the crisis has affected the nature of the social issues being addressed.
We also found companies used to prioritising the needs of different stakeholders have been able to use relationships that are built on trust to respond and adapt quickly and effectively. This link to business resilience is becoming more established due to the pandemic and is further highlighting the value of human and social capital; the ‘S’ in ESG. Added to this, the longer the crisis goes on and as restrictions are slowly eased, the more important the treatment of employees, customers, suppliers and local communities will become. As ever, these are the biggest trust issues that businesses will face and the world is watching more closely than ever.
3. Things won’t go back to the way they were
If it’s worked well why wouldn’t we want to retain some of the best bits? No doubt we will reflect on how to retain these more positive elements.
The pandemic has accelerated shifts that, in many cases, were already underway in companies and this is likely to result in permanent changes to business models – in particular, flexible working and the digital transformation. It has shown employees, managers and customers that businesses are capable of radical change, at pace, and that there are significant benefits to many of these changes. Many will not want a return to the way things were. Now there will be a period of reflection, and in some cases consultation, as restrictions are eased and businesses plan their recovery.
This crisis has shown that people really didn’t act as if there was a climate crisis.
The enforced use of digital and smart technologies and new ways of working have significantly improved resource efficiency. A key priority now is to double-down on these efficiencies and capitilise on the short-term gains made over the last couple of months. Where this period has shown what can be achieved, teams are keen to use this to reinforce the case for sustained action, longer-term behaviour change and greater ambition.
Senior people who had never worked from home are now experiencing it and think it’s ok.
It is anticipated there will be big increases in flexible working long-term – with obstacles removed, benefits felt and companies proving it can work, it will be hard to go back. It is likely that many businesses will review the need for, and purpose of, big corporate offices. We can expect a shift towards smaller ‘hubs’; less for individual work and more for collaboration and bringing teams together.
Digital capabilities have been tested and strategies accelerated, with different services often being delivered remotely for the first time. In some cases this has led to significant improvements in the customer journey and efficiencies for the business. Many expect changes will be sustained but, as with any such permanent transformation, companies will need to fully assess any unintended consequences to ensure that decisions account for the complex, and often competing, needs of different stakeholders.
4. A true test of values and purposeful leadership
This has reinforced the need to be proactive corporate citizens – we’re living in a world where poor corporate behaviour will not be tolerated and companies will be judged on whether they had a good crisis.
Companies are acutely aware that decisions made during this crisis are being closely scrutinised. For those with strong values, these have helped to guide complex moral and business decision-making; those that take account of the interests of different stakeholders even in such challenging times. Purposeful leaders have become more visible, stepping up to reassure and reaffirm commitments to concerned and anxious stakeholders. In many cases we heard how communications have improved despite the physical restrictions – typically becoming more open, honest and inclusive as a result of this situation.
Businesses will increasingly be judged on their purpose and stakeholders will expect more from businesses.
Now there is a common view that stakeholders will expect more and different things from companies coming out of the crisis – from renewed calls for purpose-led business to issues across the broad sustainability agenda increasing in importance. It is felt this is a further aspect that, if leveraged, can be used by teams to strengthen the case for sustainability. It will also present a further test of company values and leadership – how in touch a business and its leadership is with each stakeholders evolving needs and concerns – as restrictions are eased, state support is wound down and businesses recover.
Above all, we can expect even more emphasis on fair, inclusive and responsible. The ability of a business to understand the changing dynamics and nature of its key relationships both in the short and longer-term will be crucial. Then to use this to navigate the difficult, moral decisions that remain through and beyond this period is likely to define its winners and losers. In this respect, the crisis is far from over and the ability to rebuild and maintain trust will be key.
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