First Published on Thomson Reuters Regulatory Intelligence on 9th April 2020
Where 2019 might have seen climate change at the front and center for environmental, social and governance (ESG) policies, the COVID-19 pandemic is shifting the emphasis to “social” considerations. Many companies will be evaluated over how they respond to the crisis, particularly regarding employee health and work environments, their customers and the communities in which they operate, financial firms and industry experts said.
“With the disruption caused by the Covid-19 crisis, ‘social’ considerations are back at the forefront of ESG,” Morgan Stanley said in a new report. “Corporate decisions affecting workers and communities for investors have become increasingly important as a wider array of investors have begun looking at companies through an ESG lens,” the bank’s analysts said.
Meanwhile, Barclays, has also published a new ESG report which looks to uncover how COVID-19 affects sustainability concerns.
“ESG implementation may be delayed, [but] it is unlikely to be abandoned in the long run — and it may even accelerate in a post-Covid-19 world,” Barclays said in the report. “Societal and demographic shifts mean asset owners are demanding ESG integration,” it added.
Corporate behavior in times of crisis
Perhaps most importantly, and irrespective of industry, how companies behave during times of stress will have a big influence on how they are perceived by their employees, customers and investors.
“Corporate behavior and practices around workforce management, customers, and societal impacts are critical components when assessing a company through an ESG lens,” said Morgan Stanley.
“Corporate behavior in a time of crisis – both how companies treat employees and customers, and their impact on society in a time of need – can be important points of differentiation and have lasting implications, both positive and negative,” the report added.
Key decisions to watch during the crisis
Key aspects to watch during the crisis are actions taken “proactively” to support employees. Steps that companies outside their normal playbook may go a long way towards affecting how employees feel about them and influence loyalty and satisfaction. For example, implementing additional sick leave and paying one-time cash bonuses are measures that some firms have taken to assist employees.
In addition, as jobs are lost across the economy with companies facing sharp declines in customer demand, how firms handle layoffs and furloughs is another area to watch, say analysts.
“While some companies have had to resort to sizable layoffs given the drop in demand, others have taken the approach of offering voluntary short-term leave,” said Morgan Stanley. “We’ve also seen some companies implement temporary furloughs on a staggered basis, which could limit the negative impact on affected employees.”
Another area is leadership at the top of the organization and the examples set by management and the board. Some CEOs -- among them the leaders of United Airlines and Marriott International, have taken a pay cut or forgone their annual salary, coinciding with workforce reductions. Meanwhile, some European companies have decided to reduce the salaries of all members of their executive management team. Top executives at Britain's HSBC, Standard Chartered and NatWest said they would take salary cuts.
Several major U.S. financial firms, including Morgan Stanley, Citigroup and Bank of America, have pledged to avoid layoffs in 2020.
Also important are what companies are doing to support their communities during the crisis. Examples include property companies offering rent deferrals to their tenants or firms donating food and other supplies to workers on the front lines of the pandemic, such as first-responders or those in hospitals. “We think these actions, aside from being the right thing to do given the situation, can drive positive brand recognition among customers and stronger employee satisfaction and engagement over time,” analysts at Morgan Stanley added.
Important engagement questions for companies
As firms consider what policies and actions they might take to bolster their social credentials, the report suggests the following questions:
- What efforts are being taken to support employees during the COVID-19 crisis?
- What are the near-term cost implications of human capital decisions being made?
- Are there union or contractual obligations that may impact the decisions made around human capital management?
- What efforts are being taken to ensure that employees remain engaged? If working conditions have changed, what steps have been taken to ensure employees can remain productive and efficient?
- What actions has the company taken to support customers who may be facing financial challenges as a result of the COVID-19 disruption?
Workplace environment may shift
While many of the recommendations made by industry experts relate to the immediate health crisis, what comes later and the lessons that companies draw from the pandemic may be equally important.
In terms of the workplace, the experience that companies gain from having many of their employees working remotely could lead to new insights and opportunities. It might prompt a change in how companies are organized regarding on-site versus virtual engagement.
“You could imagine we are going to find a more balanced approach between the physical and digital workplace,” said George Serafeim, professor at Harvard’s Business School. “This has been an underlying force that will likely accelerate in financial services.”
That financial organizations were able to quickly redeploy their work forces remotely and maintain the same relative level of service and engagement with their clients, may lead the management of these companies to reconsider the scope of their physical footprint. Another factor they might focus on is productivity, says Serafeim.
“In many cases, employees can be as productive as before, but also some may be more productive than before,” added Serafeim, who has written widely on corporate ESG policies. “For many people, the absence from so many physical meetings allows them to concentrate on their work and be more productive.”
However, not all companies were able to easily transition to a remote working environment. Much depends on the nature of the product, the industry sector and how goods and services are delivered to customers. For manufacturing firms, how they were able to have employees work remotely is less important than how they managed the safety and health of their workers on-site.
Still, the aftermath of the crisis and what companies across all industries take away from the experience will be important to shaping their future policies towards employees, customers and communities in which they operate.
(For a regularly updated list of U.S. federal regulations related to the COVID-19/novel coronavirus update, please see the Skopos Labs Coronavirus Policy Tracker.)