Worries about workers and customers suing if they get sick leaves little room to handle other ESG risks
  • As retailers, restaurants and corporations around the world return to the work, they’ll be managing ESG risk in new ways — with an emphasis on the S, or social factors
  • The potential liability from COVID-19 may leave companies unable to take on other risks, including climate factors
  • The U.S. is considering a legal liability shield that would protect businesses from being sued by employees and customers who may blame the company if they catch COVID-19

Once the global lockdown ends and people around the world return to restaurants, shopping malls and offices, the increased risk of doing business in a post-pandemic world will begin.

In the United States, companies are urging the White House and Congress to enact measures to protect them from legal liability so that they can’t be sued if someone contracts COVID-19 at their locations and blames the company. Without that shield, which labor unions and other workers’ groups oppose, businesses may decide to limit their work on environmental, social and governance factors, including climate change.

“At this point, the social component has become all of it, and there’s no bandwidth for anything else,” Vlad Edelman, CEO and founder of social-marketing platform Targetable, which bills itself as the first virtual ad agency in the world, told Karma. “It’ll normalize. But it’s going to be a tough 12 to 18 months, particularly for retailers.”

Impact investors have long sought ways to measure the ESG risk of both companies and portfolios. While the term covers three areas, it’s been mostly synonymous with climate issues over the past few years, with less attention given to the others. But that may be changing now, with the pandemic bringing social and governance issues — such as those affecting human capital — to the forefront.

“As the business environment has shifted in the past decade to compel companies to appeal to a broader array of stakeholders, they have given their ESG-related goals and targets priority,” according to a Standard & Poor’s blog post. “We believe companies will now likely have to signal how they’ll balance near-term concerns regarding economic viability with longer-term aspirations to be more sustainable.”

Sustainability issues were front and center in both the public and private sectors before the pandemic, and the world can’t afford to ignore them now, according to a McKinsey report last month.

“Governments and citizens may struggle to integrate climate priorities with pressing economic needs in a recovery,” it said. “This could affect their investments commitments and regulatory approaches — potentially for several years, depending on the depth of the crisis and hence the length of the recovery.”

It may be easier to make climate issues a priority for businesses if they don’t have to worry about the legal liability stemming from the pandemic.

White House chief economic adviser Larry Kudlow said last month on CNBC that businesses — particularly small ones — shouldn’t have to fear “trial lawyers putting on false lawsuits.” And Senate Majority Leader Mitch McConnell, a Republican from Kentucky, told Fox Radio that  there’s an “urgent need” for a liability shield to prevent “years of endless lawsuits.”

But in a letter to congressional leaders on April 30, the Center for Science in the Public Interest argued that a liability shield would place food workers and the food-supply chain at risk, citing outbreaks of COVID-19 in the meat industry that have already shuttered plants and caused U.S. President Donald Trump to invoke the Defense Production Act to keep them running. The group also cited medical-products companies and nursing homes as industries where a liability shield would be detrimental.

“It is the failure to take reasonable measures to protect employees and the public that have led, and will continue to lead, essential businesses to close and have resulted in further community spread of COVID-19,” according to the letter. That’s the “true” threat to the economic recovery, it said.

Connecticut Sen. Richard Blumenthal told the Washington Post that McConnell’s proposal is a “non-starter.” “Providing some kind of blanket immunity shield is an idea that’s the result of the majority leader’s imaginary boogeyman of a flood of lawsuits, a parade of horribles that is a political ploy,” he said.

The ramifications of this battle are profound.  

“Getting the S part of the ESG investment wrong at this point will shut you down,” Targetable’s Edelman said. “It’s become existential. You have one health scare, and you’re done. Can you really imagine a brand surviving one health scare at this point?”

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