For company leaders, navigating the COVID crisis presents challenges like no other. How to balance the imperative to protect the health of employees and partners with their responsibility to shepherd the company’s financial assets and prospects?
Also important in the age of COVID: how, what, when and where to communicate and to who? This applies not only to companies’ current crisis management decisions but also their overriding approach to environmental, social and governance (ESG) issues and management of human talent.
A recent S&P Global Ratings paper puts it plainly: “In our view, social risks are the most acute factors right now; chief among them are health, safety and workforce dynamics… However, good governance during this troubling time is of critical importance, and environmental performance remains key.”
Boards and executives need to instill confidence in investors who also have been affected by the crisis and are scrutinizing every move. The best-run companies who can demonstrate a clear handle on ESG issues are likely to be rewarded with higher shareholder confidence and support.
Even pre-pandemic, ESG concerns had already been gaining steam. Leading institutional investors like BlackRock, Vanguard and State Street have been increasingly vocal regarding their expectations for greater transparency and ESG-related shareholder resolutions have been on the rise.
How a company manages its talent was identified as a critical factor by 64% of institutional investors in a recent survey by EY’s Center for Board Matters, followed closely by environmental issues/climate change at 56%.
Sustainable investing assets stood at $30.7 trillion at the start of 2018, a 34% increase in two years, according to a biennial study from the Global Sustainable Investment Alliance. During the sell-off following the COVID lockdown, ESG ETFs saw more inflows than any other ETF, according to analysis from Nasdaq IR Intelligence, indicating that ESG investing is seen a positive investing strategy even during a downturn.
Proxy or not?
A key question for many companies is how to communicate on their ESG commitments and actions. Many investors and other stakeholders may look to the proxy statement to address material environmental, social and governance issues to draw a correlation between ESG and economic performance.
The proxy statements of an increasing number of companies also are addressing the link between ESG performance and another high visibility subject, compensation policy. Nearly a third of nominations submitted for proxy statement categories at the 2019 Corporate Governance Awards prominently discuss the company’s efforts to include E&S information in the proxy statement, a significant increase compared with the year before.
A number of companies have invested considerably in communicating ESG through other vehicles such as dedicated Corporate Social Responsibility reports. With the pressure of COVID on budgets, it remains to be seen whether this trend will continue, at least in the near term. Whatever the approach chosen, the importance for companies to clearly communicate how they are making decisions on ESG issues has never been higher.