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ESG in real time – how Covid-19 has generated business dynamism towards ESG

 

In the latter half of 2020, we have seen a serious return of Environmental, Social and Corporate Governance (ESG) issues to the corporate agenda. Indeed, one lasting legacy that this pandemic has left on corporates could be ESG.

But it didn’t always look like it would be this way. During the depths of the first lockdown, businesses immediately focused on navigating the huge challenges of the crisis, fighting to continue their operations and adapting to remote working. At the time, it looked as though there would be an almost permanent move away from broader concerns such as climate change and diversity – which made sense at the time.

But since July, a surprising shift has occurred. alva’s own research has found that ESG-focused corporate announcements have leapt out of nowhere to become permanently listed in the ranking of the top eight news stories. We’ve seen UK supermarket Waitrose’s announcement that it will remove unnecessary plastic packaging in this year’s Christmas ranges, alongside fellow retailer Tesco’s pledge for a 300 percent sales increase in meat alternatives within five years.

What has driven this shift? My view is that Covid-19 has forced businesses to reassess and make drastic changes. This need for change, combined with the social and environmental shortcomings of previous models, has created an environment in which businesses are now readily turning their dynamism towards ESG.

COVID-19 has broken the rut of ‘business as usual’, and with companies reassessing the future, ESG is standing out as a core priority for many. But already we are beginning to see a phase two in this shift, one that I believe is being driven by stakeholders who are asking for much more from their companies.

And as these stakeholder expectations increase, ESG is beginning to look like a virtual arms race between firms all launching their own initiatives, pledges and targets. What this adds up to is that where once ESG was seen as an annual consideration – a page in the annual report; a carbon target for the coming year – it is now very much a real-time necessity.

The message from stakeholders is becoming increasingly clear: ‘Not damaging’ will no longer do, we also have to repair. Companies are expected to turn their innovation towards ESG by focusing it on product and service development.

In October, we saw JP Morgan commit to remedying the racial wealth gap, when the firm committed an additional $30 billion over the next five years to provide economic opportunity to underserved communities, with a specific focus on the Black and Latinx communities.

“Systemic racism is a tragic part of America’s history,” said Jamie Dimon, JPMorgan Chase & Co’s CEO. “We can do more and do better to break down systems that have propagated racism and widespread economic inequality, especially for Black and Latinx people. It’s long past time that society addresses racial inequities in a more tangible, meaningful way.”

Meanwhile, GSK committed to having a ‘net positive impact on the planet’, by launching ambitious new green goals and a commitment to having a “net positive” impact on the planet by 2030. The pharmaceuticals giant will equip all sales staff with electric vehicles, use 100% renewable energy at all sites and commit to zero waste across its complex supply chain. Single-use plastics will be eliminated, except for those critical to product development, health and safety, and regulatory requirements.

And Walmart not only committed to net zero, but also aimed at becoming regenerative. The retail chain pledged to “protect, manage or restore” a million square miles of ocean and 50 million acres of land by 2030. It also plans to achieve zero waste in its own operations in the US, Canada, Japan and the UK by 2025.

But much like other companies, a large proportion of Walmart’s impact on the environment comes via its suppliers and how its shoppers use its products. Walmart’s Chief Sustainability Officer Kathleen McLaughlin added that “we are trying to essentially transform the way that consumer supply chains function right from source through to consumer and end of life.”

These three massive commitments have much in common. They are highly convincing, powerful statements of intent, and ones that require continuous, real-time activation. These are the antithesis of the ‘greenwashing’ tendencies we have seen in the past, giving opportunities for these brands to constantly provide firm evidence that they are bringing ESG issues into their overall strategy in a meaningful way.

The size and frequency of these big ticket ESG announcements suggest that corporates are fully aware of the pressure that they are now under to comply with the needs of their stakeholders to a far greater degree than before COVID-19. I believe that the pandemic supercharged the gradual transformation to a stakeholder capitalism model as positioned by the Business Roundtable, and I expect to see far more of this in 2021 and beyond.

About Alberto

alva’s Founder and CEO, Alberto Lopez Valenzuela has spent more than 25 years working in business information and analysis. Alberto is a recognised business thought leader who has been a Visiting Professor at Cass School of Business and is a regular speaker on a variety of issues, including the business impact of reputation, data analytics techniques and personal experiences as an entrepreneur.  Alberto’s book, The Connecting Leader, examines how corporate leaders connect businesses with society, especially in this age of hyper-transparency, interconnectivity and media anarchy.

 

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