For anyone that has ever questioned the validity of Environmental Social Governance (ESG), now, more than ever, we are seeing the real-time benefits. While the impact of the global COVID-19 crisis continues to negatively affect various parts of the market, companies that have implemented and/or are working to implement ESG strategies are well-positioned to better survive these challenging times. Without a doubt, the discussion and prioritization around ESG will continue throughout the COVID-19 crisis and beyond. There are a few reasons we believe this to be the case:
- Potential, future regulation. ESG has already made its way to the Hill, with certain Democratic House members pushing—albeit it unsuccessfully—to include ESG language in the COVID-III supplemental bill. However, this is hardly the first time that Members have pushed for ESG to be added to legislation, with it now also being a reoccurring trend in regulation and SEC discussions. While we don’t know what future regulation looks like and/or what legislation will be passed, it is clear that the Democratic side of the House is compelled to drive companies to manage these issues, during both times of crisis and during the normal legislative agenda.
- Market and investors. As financial, reputational, legal and brand value have been empirically proven to improve when companies implement ESG, these realized benefits will not fade away. Through ESG, the market has identified a more holistic way to manage risk and opportunity. The due diligence processes and frameworks for assessments have already been built and implemented from a credit rating perspective and investor risk premium perspective. Even during a market crisis, there are indicators that show companies with ESG practices are better able to weather the storm of a downturn. Once the market settles and COVID-19 dissipates, companies will absolutely have ESG as a priority strategy item.
- Internal value. By implementing an ESG strategy, investors and stakeholders get the benefits of increased disclosure and reporting. Furthermore, by developing processes to determine where risks lie, management value for running and operating a company is immensely improved. The critical process of identifying and responding to risk only better position companies to derive long-term success.
- Industries under the microscope. For a variety of reasons, investors are singling out certain industries – oil and gas, coal, and mining/metals, just to name a few. From a lack of performance to climate change and divestment pressures, companies are under the microscope– yet attracting capital remains crucial. There are investors that are willing to invest in this sector, and ESG is a powerful (and proven) tool to appeal to this group.
- ‘Social’ aspect of ESG. The market is fragile right now and people and communities are suffering. There is no more critical time for a company’s culture to be prioritized. The companies that are laying off workers, engaging in non-paid leave, cutting social contributions to schools or other social investments are making the headlines. However, so are the companies that are problem solving to keep their employees on payroll, extending access to health care, propping up small businesses, etc. Those will be the ones that attract the top talent and maintain the best workforce moving forward
For advice or questions around your organization’s ESG strategy, email @afishman@cgagroup.com.