Why ESG will still matter post Covid-19

By Ludo Baynham-Herd, FHF London, Associate Director – Financial Services

Article originally appeared on https://fhflondon.co.uk/2020/05/why-esg-will-still-matter-post-covid-19/

 

Amid the severity of the global pandemic and economic uncertainty that lies ahead, many have questioned whether the recent rise of “ESG” (environment, social and governance) factors will dissipate as business, investors and governments focus on getting the global economy and equity markets back on a firm footing.

 

However, as we head into AGM season it appears ESG has remained firmly on the agenda with some of the biggest beasts in the asset management jungle speaking out to reiterate their focus on ESG and their steadfast commitment to hold corporates to account if they fail to meet their standards – even in spite of the vast repercussions of the global pandemic.

If anything, it could be argued that the crisis has shone an even greater spotlight on a few key areas that will ensure ESG remains a crucial priority both in the short and long-term.

1. A rethink of responsible capitalism

Earlier this year, which today seems like a very long time ago, much of the focus around ESG was on the “E”, centred around the collective response to the climate emergency – widely publicised by the likes of Greta Thurnberg and Extinction Rebellion. But since then, the pandemic has shifted focus onto the “S” and whether companies and business leaders are doing the ‘right thing’ through the crisis – by the employees, by their stakeholders and by society.

Indeed, FleishmanHillard’s COVID-19 Mindset research found 42% of people say they will base future purchasing decisions on companies that took care of employees during the crisis, and just 22% of people believe major corporations are doing well in their role.

Together this has meant that ‘doing right’ has become the number one driver of corporate reputation right now. And as the world battles to get a semblance of normality back, how businesses communicate their impact on society and their purpose has never been more important.

2. A review of risk

Over a few mere months, the world has been disrupted like nothing in recent times and many corporations that would otherwise have strong fundamentals have found themselves battling to survive. In such a short space of time, we have suddenly become acutely aware of just how susceptible we are to risk and what scenarios we really aren’t prepared for – whether it be another health crisis, unforeseen supply chain issues or a major environmental emergency.

ESG is as much about communicating a plan to address the challenges of the here and now, as it is about businesses articulating to stakeholders how they are safeguarding their long-term future and ensuring sustainable growth. This sentiment around sustainable business will only grow as the pandemic eventually passes, and there are likely to be calls for greater clarity, detail and regular communications on how businesses are addressing, mitigating and reducing risk throughout their organisations.

3. A focus on performance

As investors have seen global equity markets tumble, there has inevitably been a knee jolt reaction and laser focus on performance – for both corporates and fund managers. For corporates, recent studies suggest there is a positive correlation between a company’s ESG rating and share price. Whilst, from an investment perspective more than half of ethical investment funds have outperformed the wider global stock index in the market downturn – largely by avoiding exposure to oil and energy sectors that have dragged down passive funds. Demonstrating and explaining financial performance will be key as we move forward into recovery and resurgence – and naturally those companies that do so through an ESG lens are likely to be those that thrive.

How should communications teams respond?

Together these factors will ensure ESG will remain a strategic priority post Covid-19, and an essential focus area for corporate affairs, communications and investor relations teams going forward.

From a communications perspective, it will be important to articulate a clear ESG strategy and the context which it has been created or adjusted in light of the crisis – which in turn this will shape the nuanced messages that will be needed for a variety of stakeholders, whether it be institutional investors, regulators, ratings agencies or employees.

Despite all the change around us, two vital principles will remain the same in a post-COVID world – authentic communication and consistent reporting will continue to be critical to meeting stakeholder and ESG demands.