- Many companies are paying greater attention to employee welfare as COVID-19 has underlined the importance of environmental, social and governance factors.
- Before the coronavirus outbreak, the dangers posed by climate change had led to an upsurge of interest in the environmental and corporate governance components of ESG.
- Companies that seriously deal with ESG issues should end up being more resilient and could be better prepared to flourish in a post-pandemic world.
A growing chorus of investors insist that companies prioritize employee welfare, as the COVID-19 pandemic underlines the importance of environmental, social and governance factors.
ESG issues have all grown in importance for years, but climate change–focused attention on the environment and governance, while social criteria were often footnotes.
This is changing, with many companies already bolstering pay and liberalized leave policies in response to the pandemic. Now, more investors are pressuring companies to ensure that social responsibility and the treatment of employees are treated as priorities.
“This has brought attention to the ‘S’ part of ESG,” George Dallas, policy director of the International Corporate Governance Network, told Karma. “Climate change has often been the focus, but social issues are also profound.”
ICGN, who’s members manage $54 trillion in assets, sent a letter on shared governance responsibilities to corporate leaders on Thursday. The first bullet point was the importance of employee safety and welfare, while maintaining a firm’s liquidity so it can preserve financial health during the pandemic. The letter also called for social responsibility, sustainability, a holistic approach to capital decisions and communication with all stakeholders.
“We work a lot with pension funds, which are investing for the long term,” Dallas said. “In theory, the investment horizon is infinite. ESG helps us plan for the future.”
Employees aren’t the only group that’s receiving greater attention as a result of the COVID-19 outbreak. The pandemic has shown that companies are vulnerable to a wide range of environmental and social risk factors, and it also underlined the importance of strong leadership, according to S&P Global Ratings.
The Investor Alliance for Human Rights, whose members have $5 trillion in managed assets, called for governments to require companies to conduct ongoing risk management assessments about the dangers faced by people associated with their business activities. Mandating that companies perform human rights due diligence allows investors to fulfill their responsibility to promote human rights, according to the investor statement. Respecting human rights protects companies from reputational risk, according to the group’s April 21 statement.
Before the COVID-19 outbreak, ESG criteria factors were gaining traction. Nuveen recently released a study showing that ESG proposals in 2020 will climb to all-time highs with environmental and social topics being the main areas of interest.
“When things calm down, we will still have pretty profound issues facing us,” Dallas said. “Climate change is still with us.”
The fallout from the pandemic could lead to a greater focus on ESG criteria and preparedness, according to S&P Global Ratings. Companies that are strong performers in those areas and stakeholder-focused are likely to remain resilient as we go through these unprecedented shocks, according to S&P, which on April 20 released the first half of a two-part series assessing the ESG implications of COVID-19.
“This is an urgent problem that everyone is focused on,” Dallas said. “Companies are responding to a humanitarian issue. People are a priority.”