What role does ESG play in the ‘new normal’?

Energy

Facing existential crisis, it’s only natural that our perspective will change — for better and for worse. In recent weeks and months, as many of us have “sheltered in place” in the face of a global pandemic, each of us has come to grips with a valuable reminder of what’s truly important: family, friends and colleagues; security and safety; food and water; healthcare. By comparison, everything else seems small and suddenly insignificant. For some of us, that includes our work.

When people are sick, suffering and dying — with little certainty about when or how it will end — how can we be expected to focus on a project deadline, a business meeting or a PowerPoint presentation? Recently, I was asked to participate in a webinar discussion about environmental, social and governance (ESG) investing in the wake of COVID-19, and I had to ask myself, “Is the work we’re doing at SASB completely irrelevant or more relevant than ever?” 

The most urgent and important work being done today is that of our healthcare workers, grocery employees, delivery people and others on the front lines of meeting society’s most basic and most critical needs. We shouldn’t let a day pass without thanking them for their service, nor without asking ourselves how we can better support them as they rise to meet the scale of challenge before us.

And soon, we must start giving serious thought to what we can do to ensure they’re never put in such a desperate position again.

Respond now, adapt as soon as possible

While today’s triage efforts are paramount, society is clearly starting to think about what’s next. This is an opportunity for all of us — companies, investors, government, civil society — to think critically about what our role might be in creating a more resilient future. 

Although the global COVID-19 outbreak is first and foremost an existential public health threat, it also likely represents the dawn of an economic “new world order” and a reshaping of the global economy. Without question, it’s too soon to draw any conclusions about the lessons we’ve learned from this experience, but it’s nevertheless clear that businesses, investors and our entire system of free enterprise will need to adapt to a new normal in the coming post-coronavirus era. 

Transparency leads to accountability, accountability drives innovation and innovation is key to resilience.

In recent years, the rise of ESG, responsible investing, corporate sustainability — different people use different terms — has focused on evolving “business as usual” by recognizing that effectively managing environmental and social issues is key to the long-term sustainability of both business and society. The COVID-19 crisis is likely to accelerate this trend. The key questions that have arisen from the crisis are essentially ESG questions, such as:

  • Will rising biodiversity loss and the changing climate influence the frequency and intensity of pandemics? How can companies adapt to ensure business continuity in such an uncertain environment?
  • How can we ensure more resilient supply chains for essential goods, such as food and medicine?
  • What can businesses in B2C industries do to ensure the health and safety of their employees and customers?
  • How can healthcare providers better ensure access to critical tests and treatments at an affordable price?
  • How might a long-term period of “social distancing” influence the adoption of artificial intelligence and robotics, and how will that affect workers whose jobs can’t be done remotely — such as manufacturing, waste management and deliveries?
  • How can traditional and ecommerce retailers ensure fair pricing and reduce the risk of supply hoarding or price gouging?
  • How can a wide range of industries — across the transportation, technology, hospitality and infrastructure sectors and beyond — effectively adapt in the wake of an anticipated rise in telecommuting and teleconferencing?
  • Will the COVID-19 crisis permanently change consumer behavior regarding shopping, travel and entertainment, with significant implications for the retail and hospitality sectors? 

Once the worst of the current crisis is behind us, it’s crucial that we don’t weaken our resolve to ensure that individuals, businesses, investors, economies — and thus society at large — can become more resilient in the face of 21st-century challenges.

An opportunity to adapt

In the coming months, as the forces unleashed by the COVID-19 crisis continue to reshape the economic landscape, they will bring long-held assumptions under scrutiny and potentially render entire business models irrelevant. They will bring more questions, but also — if we’re receptive to them — more answers.

At SASB, we encourage long-term thinking in capital markets, and while that may not help solve today’s crisis, we believe it can contribute to preventing — or at least tempering — tomorrow’s. 

We believe transparency and disclosure on business-critical ESG issues will improve how companies and investors measure and manage so-called non-financial — but nevertheless critical — resources such as natural, social and human capital. Further, it will help corporate directors and managers, along with investors, understand how effective management of those resources is critical to the long-term sustainability of a business.

Emerging from this crisis, we can shape a future in which the interests of business, investors and society are in closer alignment.

 

The best answer to my question about the relevance of our work came during a recent “industry deep dive” webinar. Our restaurant industry analyst was discussing the connection between worker health and foodborne illnesses — a business-critical issue in the restaurant industry — and the metrics that can help drive effective management of such risks, including worker training and food-handling protocols. 

I immediately thought about the increasingly clear connection between lack of paid sick leave and the spread of illness, and it became clear: This crisis will provide important new insights into non-traditional performance metrics that will help drive a structural shift in how both companies and investors think about delivering long-term value to both shareholders and society.

To return to my original question — is ESG disclosure irrelevant or more relevant than ever — I believe the communication piece is key. Transparency leads to accountability, accountability drives innovation and innovation is key to resilience. When investors readily can identify and direct financial capital to the forward-looking companies that are evolving their business models to thrive in the face of future risks, markets will be more stable, more efficient and better prepared to absorb unexpected shocks.

Today, we’re being asked to choose between lives and livelihoods. Emerging from this crisis, we can shape a future in which the interests of business, investors and society are in closer alignment. When economic and human prosperity are mutually supportive, we won’t have to sacrifice one for the other. 

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