Catherine Harris (Acre): “Weathering the Storm: Where Strong ESG Performance Counts”

As we start to transition into a new phase of recovery, our attention is turning to the question of what sustainability will look like – and what role it will have to play in a post-COVID world.

​Risk, Resilience and Crisis Management

We know that for the time-being the priority for businesses is survival, crisis management, resilience and risk management – risk being on both the downside and the upside, in terms of the opportunities that will also arise from the crisis.

Here at Acre while many recruitment processes still remain on pause; we’re also seeing new mandates come in and the first shoots of recovery are beginning to show. While there has been mixed activity across all four areas of our business (EHS, Energy, CR/Sustainability and Sustainable Investment) the latter category has remained reasonably buoyant throughout.

It’s now widely observed that businesses with strong Environmental, Social and Governance (ESG) ratings are seeing better performance and resilience through the crisis (McKinsey, S&P Dow Jones, Blackrock, Goldman Sachs). Indeed, this is the first time ESG as a product category is holding up well through such a major financial downturn.

COVID-19 and Social Sustainability

COVID-19 is intensifying investor expectations for greater transparency on all aspects of ESG performance and reporting, but in particular it has amplified the attention on the “S” considerations; as investors look for strong company policies around health, safety and wellbeing, and strong social contracts across multiple stakeholder groups. ​

As a result, teams with a traditional CSR role and a philanthropic focus remain busy and are being retained to focus on crisis management in the community – providing food donations, volunteering and manufacturing PPE for front-line workers. Conversely those with a focus on human rights and social compliance in the supply chain, are notably less busy or in some cases, temporarily furloughed. This is being felt most acutely in sectors such as apparel manufacturing; however, as factories and shops start to re-open, we are seeing these functions slowly return. ​

Social responsibility also extends to the support of employees who are working from home to ensure their physical and mental health is being cared for. Employees are now encouraged to switch off at a reasonable time and to take regular breaks away from their makeshift desks, as they are now effectively sleeping in their own offices. Investors will also look favorably on businesses that have successfully managed to pivot to a remote-working scenario, which if managed well, may improve efficiency and drive down overheads. ​

COVID-19 and Environmental Sustainability

On the ‘E’ side, we already know that driving down emissions, transitioning to cleaner energy and reducing waste makes businesses more efficient and better positioned to weather storms such as these. Those already addressing how climate-related risks such as flooding or how drought impacts food security and supply chains; may indeed have been better prepared to cope with the type of supply-chain disruptions we’re now seeing as a result of COVID-19. ​

We also know that a growing number of Investors are also working to align their investment portfolios with a 1.5 – 2-degree climate scenario, in line with the Paris Agreement and as part of the voluntary TCFD approach to integrated financial and energy transition reporting. This, alongside new sustainable finance regulation in Canada, the EU and UK means we can afford to remain bullish about the inevitable bounce-back and growth of environmentally sustainable business practices.

The Future of Sustainability?

For the time-being, we’re flying, consuming and polluting less; however, we’re also recycling less and using more single-use plastic, too. That said, rising health concerns around microplastics mean recycling facilities will reopen and we’ll see further moves towards more sustainable packaging and re-use solutions. As society appreciates cleaner air and its connection to improved health, so heavy industry and high-polluting businesses will be required by society and indeed investors, to shift to a less carbon-heavy business model.

A recent article in the Wall St Journal, states that as a result of COVID-19, companies should anticipate more questions from investors about contingency planning and resilience, where issues highlighted by the pandemic have a direct impact on a company’s long-term performance. Further down the line, those conversations could also evolve to broader ESG issues.

While many corporates currently remain in a holding pattern in terms of making new CR & Sustainability hires; we expect to see the balance shift in a positive direction as we anticipate a growing requirement from investors to address these issues. Companies that may have used CR & Sustainability as a PR or Marketing exercise – will be required to engage on material ESG factors at both a strategic and operational level both internally, and across their supply chains.

​As a business we remain hopeful that investors, policy makers and business-leaders will recognize the financial and extra-financial benefits of tackling social, environmental and governance issues with even more vigor and resolve than ever before.

As a follow up to this piece, we’ll be bringing you a more granular look at what trends we’ve been observing across sectors and practice areas around the globe.

Catherine Harris, Head of CR + Sustainability Acre

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