May 21, 2020
We are now in the third month since the global effects of the COVID-19 pandemic and related economic shock changed our present, and very likely our future. While there are signs of public health recovery in many places, the economic impacts of this generational event will be felt for a long time to come.
It is now possible to begin to draw some conclusions on the impacts of the coronavirus on sustainable business. First and foremost, despite the serious economic issues facing companies everywhere, there are strong signs that the commitment to sustainability remains strong. Companies continue to understand and appreciate that sustainability was a core part of resilient business strategies before the virus hit, is a primary source of strategic advantage, and will be a crucial part of rebuilding the global economy.
This has been reinforced by investors. There are hopeful signs that the mainstream investors that have upped their commitments to environmental, social, and governance (ESG) considerations remain all in. ESG-pegged funds have performed better and experienced smaller declines during the initial pandemic stock sell-off: Data indicate that almost 60 percent of the biggest U.S. ESG mutual funds performed better than the S&P 500. Data from Morningstar indicate that in March, as market activity slowed dramatically in the face of lockdowns around the world, 62 percent of ESG-focused large-cap equity funds outperformed the MSCI World Index.
But this is not to say that sustainability won’t be changed by the deep and wide impacts of one of the most transformative three-month periods in a century: It undeniably has.
Let’s face facts: Many companies are hurting, facing existential questions, liquidity problems, and just plain limited bandwidth. In this context, many of our partners at BSR member companies have asked me, “is it tone deaf to be talking about sustainability now?” My answer has been: No, it’s not, but how you talk about it, and what you prioritize, matters greatly.
The parts of the sustainability agenda that deliver top-line value, motivate coworkers, and demonstrate to customers that a company is looking after more than short-term financial gain are the things that matter right now.
It is also the case that the issue set has to adapt. Here are the “Big Six” issues rising in importance.
- The “S” in ESG is more important than ever. The social agenda is more important at a time when tens of millions of people have lost their jobs and people are concerned about their livelihoods, health, and ongoing social cohesion issues. Labor practices will come under increased scrutiny. Women and marginalized communities have been disproportionately disadvantaged by the impacts of the crisis: Their needs demand our attention. BSR works with its members to advance diversity and inclusion, inclusive economic growth, and human rights, all of which are more central than ever to meeting the needs and expectations of employees, communities, regulators, and investors.
- The use of new technologies is accelerating, along with the need to consider human rights and privacy implications. While this topic has been growing in importance, new use cases for contact tracing and workplace monitoring will present significant questions about how to balance health and safety with privacy and human rights standards. We have been aiding companies to align the promise of new technologies with human rights principles, and this is now higher on every company’s agenda.
- Supply chains are under enormous pressure, with companies looking to ensure continuity and address dislocation of workers who have been laid off or furloughed. Tens of millions of workers in global supply chains, many of them women, face increased economic hardship, while fending off a rise in gender-based violence. Companies also need to preserve their supply chains to meet the eventual return of consumer demand. Our HERessentials project is helping to ensure that the needs of millions of women facing lost livelihoods due to the pandemic are met.
- Executive compensation and tax practices are coming under increased scrutiny as job losses reach historic proportions. For too long, we have left economic equity out of the sustainability agenda, and that has to change in the wake of historic economic dislocation. One of the ways BSR is taking on this issue is working with our member companies and other partners to redefine the social contract. Look for more from us on this subject next month.
- One of the most dispiriting statistics to come from the last three months has been the amazing drop in emissions as a result of the economic shutdown. But it is not close to what we need to achieve every year to meet the goals of the Paris Agreement. This should remind us how much innovation is needed to urgently bend the emissions curve and achieve the progress required on climate. The good news is that investors remain committed, creating a clear and direct incentive for companies to stay on track. Our ongoing efforts to assist companies with TCFD assessments, Scope 3 plans, and climate resilience continue apace, with good signs that the business commitment to climate action remains strong.
- Finally, health and well-being is rising on the agenda. Beyond the obvious need to ensure that the virus is tamed as rapidly as possible, business has more incentive to look after both the physical health, but also the well-being of colleagues who are navigating an unexpected and difficult time. Strategic investments in healthy business pay dividends. Through our Healthy Business Coalition, we work with companies who are investing in health along their value chain. Companies with healthier supply chains have more productive workforces, are better able to serve customers, and help consumers to live longer, more fulfilling lives, resulting in thriving communities. This work has taken on even greater importance in the context of the coronavirus.
There is much to play for. Many of our neighbors and colleagues are facing uncertainty, urgent health needs, and a long road back to economic vitality, all while our climate and environmental challenges remain fundamentally important.
We who promote sustainable business need to up our game. Our work remains essential and critical to business success and resilience. But that will only be the case if we adapt our approaches and the issues and solutions we bring forward. I remain confident we can meet the moment and build a better future. We have to get out of our comfort zone to make that happen.
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