What has been the impact of the COVID-19 pandemic on companies’ sustainability efforts? On the one hand, as discussed in this article from the WSJ, C-suite occupants have been “trying to figure out what they’re willing to throw overboard as the economic storm spawned by the pandemic is swamping their ships. Businesses that were planning to help save the world are now simply saving themselves….History suggests this new [sustainability] paradigm is probably on the back burner.” Even BlackRock, which had previously announced that it was putting “sustainability at the center of [its] investment approach,” acknowledged in April, that “certain non-financial projects like sustainability reports had been ‘de-prioritized’ due to COVID-19. ‘We recognize that in the near-term companies may need to reallocate resources to address immediate priorities in these uncertain times.’ BlackRock’s report stated. BlackRock said it would ‘expect a return to companies focusing on material sustainability management and reporting in due course.’”

On the other hand, however, as this article from Financial Executives International observed, the COVID-19 pandemic has highlighted “the very issues that have been driving ESG concerns—managing resources, sustainability, community impact and employee well-being.” While it might have been “easy to assume the current crisis may permanently shift attention away from environmental, social and governance (ESG) concerns as management teams grapple with existential issues,” it turned out that “the very actions companies are taking will likely bring them closer to the multi-stakeholder, long-term value principles that lie at the heart of ESG.” How are companies viewing the effects?

The Conference Board conducted a survey of general counsel, corporate secretaries and investor relations officers at 236 public companies of different sizes in a variety of business sectors between April 9, and May 8, 2020. Among other issues, the survey asked respondents about the expected impact of the COVID-19 crisis on the company’s overall sustainability program. Respondents were “sharply divided”:

  • 18.6% thought the pandemic would put their general sustainability efforts on temporary hold
    • rising to 33% in the materials sector
    • smaller companies were more likely to expect to see a hold: the percentage climbed to 25% for companies with annual revenue below $1B and to 27% for companies with asset values below $10B
  • 12.3% believed that the crisis would decrease the overall emphasis on sustainability
    • rising to about 40% in the energy sector and 22% in the materials sector
    • that view had no traction (0%) in the consumer staples, healthcare, real estate and utilities sectors
    • declining to 5% for companies with assets over $100B and 7% with assets under $10B
  • 10.2% thought the pandemic would increase the overall emphasis on sustainability at their companies
    • rising to 20% for the communications sector, 18% for real estate and 17% for consumer staples
    • slightly higher, at about 13%, for companies with annual revenue of $10B and over
    • only about 7% for companies with assets between $10B and $99B
  • 21.6% expected little or no impact
    • climbing to 33% in the consumer staples, materials and utilities sectors and 35% in healthcare
    • rising to 30% for companies with assets below $10B and declining to 10% for companies with assets of $100B and over
  • 37.7% thought that the pandemic could result in a shift of focus in program priorities, with more emphasis, for example, on supply chains or employees
    • rising to almost 50% in communications, industrials and information technology sectors
    • declining to 0% in the materials sector
    • rising to 55% for companies with assets of $100B and over and to 48% for companies with assets between $10B to $99B

SideBar

As discussed in this Reuters article, the welfare of workers “is having a moment on Wall Street.” Issues surrounding paid sick leave and safe working conditions have become a top priority for managements and boards; for some investors, they have become “a golden opportunity to apply the principles of ethical investing.” While, previously, investors tended to focus on the environment (“e”) and governance issues such as proxy access (“g”), now social issues (“s”), especially human capital management, have become predominant. According to the article, companies that “have chosen to cut jobs rather than investor payouts have drawn criticism,” and some investors have gone so far as to organize a letter, now with over 300 signatories from managers overseeing more than $9 trillion in assets, asking companies to make workers’ welfare a priority by providing paid sick leave to employees (including temporary, part time and subcontracted workers) and protecting worker and public safety with measures such as rotating shifts, remote work, enhanced protections, trainings or cleaning, adopting the occupational safety and health guidance, and even closing locations, when necessary.

The WSJ is also reporting that investors are pressuring companies to “strengthen employee benefits after the coronavirus pandemic exposed shortcomings in U.S. labor policy. Investors have scrutinized how U.S. companies have managed their workforces during the crisis to determine how ready they are for future global emergencies. Issues include offering paid sick leave, counseling, protective equipment, flexible work and the option to work from home.” The article reports that both BlackRock and State Street are focusing on “more immediate ESG issues,” such as employee health and safety. According to one commentator cited in the article, the “crisis presents the best opportunity yet for companies to prove whether they are pledged to stakeholders as many have claimed for years, like workers and local communities, and not just stockholders. ‘This is a litmus test for corporate commitment.’”

The next question is whether the concern for employee welfare survives the pandemic? According to one union spokesperson cited in the article, “[i]t is too early to know how the pandemic will affect the balance between corporate social responsibility and pursuit of shareholder value above all else.” As the article notes, “the longer it takes economies to recover from the pandemic, the greater the pressure on companies to cut costs, including jobs.”

While companies are divided, the Conference Board reports that investors are continuing their ESG push:

“In the aftermath of the virus outbreak, BlackRock and State Street have issued statements indicating their intention to continue to center stewardship on the demand for additional disclosure on key ESG and sustainability issues such as climate change risk and human capital management. Others have also mentioned that they expect companies to explain how their ESG programs served them during this crisis, to increase their efforts overall, and to particularly focus on certain areas, ranging from climate change to supply chain reliability to employee health and safety.”

The Conference Board has previously contended that the

“track records of companies with strong sustainability initiatives serve as a reminder that sustainability is not a luxury reserved only for good times; to the contrary, companies that have invested in sustainability are often better able to weather crises and recover from them quicker. Recently published research, for example, finds that companies with better sustainability scores are outperforming those with lower ones since the S&P 500 peaked in February; similarly, stocks with lower sustainability scores are seeing bigger cuts to earnings forecasts compared to stocks with top sustainability profiles.’’

Beyond investors, the Conference Board reports that other stakeholders are also focused on ESG: 81% of consumers worldwide agree that it is “very or extremely important for companies to improve the environment,” and 90% of employees believe that it is “at least important for [the] company to engage on social issues.”

The Conference Board recommends that companies “explain changes effectively to their investors and other stakeholders, who are likely expecting the company’s focus on ESG to continue, if not accelerate.”