Wim Peeters (Ecovadis): “Liquidity for Sustainability: Using COVID-19 Financial Relief as a Lever to Prioritize Responsible Business”

As the business and financial implications of the COVID-19 crisis continue to unfold, it is not surprising to see a range of emergency measures being taken to secure businesses and support stakeholders. Governments are providing financial and liquidity measures to try not only to save individual citizens from hardship, but also to protect businesses, reduce bankruptcies, and minimize the destruction of associated labor and skill bases. This is an opportunity to look ahead in this crisis and better prepare for when we may someday return to a “New Normal” that favors resilience and sustainability.

One of the first reactions by companies in the initial phase of this crisis was to hoard as much cash as possible to get through the downturn in business– of which the impact and duration is still uncertain. These actions are having cascading effects – on employees, customers and especially the supply chains of these companies, exacerbating the financial impact even more.

Big Business Taking the Initiative to Support Value Chain Stakeholders

Governments and central banks recognized the coming cash crunch and rushed to bring as much liquidity to the market as they could bear, in an effort to minimize business failures and the knock-on effects of unemployed workers. We’ve also seen some bright spots where leading multinational corporations are taking the initiative to support their value chains: They understand that, in order to survive in the mid to long term, they need to make sure their supply chain partners survive, too, until we can exit this crisis and restart business. Just a couple examples are Unilever, who committed €500M, and Danone, who committed €250M, to support their small and medium sized suppliers.

Who Should Receive Scarce Liquidity Resources?

It is encouraging to see visionary support for stakeholders from private sector players, as well as governments, to try to maintain liquidity. But it’s no secret that many supply chains are already fraught with difficult challenges, such as forced labor and debt indenturement, poor working conditions, environmentally destructive practices and poor ethics. Decisions about which businesses to support during this COVID-19 crisis pose a vital question – one that is essential for long-term recovery: Are there any criteria applied to ensure that “good” ones are selected over “bad” ones?

Actions to protect businesses present an opportunity to ensure that  financial support is extended to supply chain players that can demonstrate transparency in their sustainability performance, which is essential for building a more resilient supply base. If no criteria are applied, we risk extending support to actors that are  – or are at high risk of – perpetuating unsustainable and irresponsible business practices.

Wouldn’t it be horrible to find out that these financial lifelines have been granted to companies that exploit their workers or have a poor environmental track record?
In many cases, there is an assumption – or at least a hope – that, in order for that financial support to be effective in preserving labor/skill bases, some of that aid will trickle down to the workers themselves in the form of pay and benefits, so they can preserve their homes and families. If the suppliers are unethical to begin with, what are the odds they’ll share any of that cash with their workers?

Thus, it is incumbent on companies who are thinking of extending financial help to their key supply chain partners to condition this assistance on sustainability transparency and performance.

Seize the Opportunity to Do Better

Some perceptive politicians and governments have already started to make this call to set standards: The Finnish government is considering linking the subsidies for post-COVID recovery to converting the economy from fossil fuel to renewable sources.  Governments are proposing to include climate change conditions and job guarantees in the requirements for the aid they may provide for airlines, like Lufthansa, Austrian Airlines and Brussels Airlines, to keep them afloat. In France, National Assembly member, Olivia Gregoire called for “rewarding virtuous companies” (e.g., those who pay suppliers earlier or suspend dividends) with economic support.  Moreover, it seems an obvious step to make sure relief funds don’t reward companies taking bribes or employing child labor, which is already part of France’s “Devoir de Vigilance” supply chain due diligence laws and “Sapin II” anti-corruption measures.

This is a rare opportunity to bring financial reward to companies based on their sustainability track record or their willingness to engage in improvement measures and transparency. We hope governments and major corporations see this vision and think outside of the box when planning how to pour trillions of dollars in relief into the economy: Leveraging this aid across the scope of global supply chains is business’s most powerful force for driving progress on the UN Sustainable Development Goals (SDGs) to create a more robust and resilient society, and to improve the lives of millions of vulnerable workers.

Mark Carney (former governor of the Bank of England) stated, in his recent Economist article on how COVID-19 could cause the economy to yield to human values, that “…[COVID-19 is] a test of stakeholder capitalism. When it’s over, companies will be judged by ‘what they did during the war,’ how they treated their employees, suppliers and customers, by who shared and who hoarded.” Let’s take that one step further and ensure that the businesses we “share” with also share responsible business values, which will be essential for building a resilient and sustainable future.

Wim Peeters, Vice President Business Development EcoVadis

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