Increase in ESG demand after COVID-19

Despite the global economic and health crisis resulting from the COVID-19 pandemic, many companies have continued to intensify their efforts in order to improve their management approaches and communications on environmental, social and governance issues (ESG).        As a matter of fact, in many cases, the current crisis has accelerated pre-existing trends towards a greater adoption of ESG, underlining the role that companies play in tackling wider societal issues. The growing adoption of ESG management systems is driven by two co-occurring trends.

First of all, significant social pressures, changing expectations towards private companies, and ongoing regulatory changes have increased the demand for companies to proactively take responsibility for potential externalities affecting the environment and society.

Secondly, investment and business professionals are becoming more and more recognised. For this reason, ESG issues can have a significant impact on company value and also on risk management: they can preserve and even enhance the economic value of companies and their shareholders.

We can see that stakeholder awareness of the impact that companies have on society and the environment is also changing at the local level, as consumers, employees and local authotities become more vocal about their concerns.

Consumer awareness of these issues, from packaging to single-use plastics, from concerns about the carbon footprint of meat production to the working conditions in clothing manufactures, can affect a wide range of industries, and public participation in this debate has become more widespread through the use of social media and other communication platforms.                                                                                                                                This was intensified by the COVID-19 crisis, and companies have tried to navigate the unique and immediate social issues that have arisen.

For example, there is a realization of the need to develop health and safety procedures for the workplace to protect employees, and the remuneration of senior managers has come under scrutiny in the context of mass labour, working time reduction, job cuts and salary reductions.                                                                                                                                  As public opinion becomes both more sensitive to social and environmental issues and more receptive to the scrutiny of company practices, companies, investors and other market participants are likely to become more and more aware of the potential financial and reputational repercussions of ESG management.

The current, unprecedented economic and health crisis seems likely to have a profound impact on the way companies and investors consider and address ESG issues in the future.  We can draw two early lessons from the COVID-19 crisis with regard to ESG management:

Social inequalities and risks for the workforce have been exposed:

One of the most visible effects of this crisis has been the rapid exposure of significant risks to the most vulnerable groups in society. Many employees in lower-paid jobs have suffered large-scale layoffs and, in some countries, a lack or loss of health insurance coverage when they needed it most.                                                                                                                    At the same time, many low-paid employees in a wide range of industries, including healthcare, elderly care, food manufacturing, distribution for online retailers and grocery stores, who are now considered as "essential workers", have retained their jobs, but have been most exposed to COVID-19.                                                                                                        The pandemic has disproportionately affected minorities, and the tragic murder of George Floyd has brought to the forefront concerns about systemic racial prejudices and inequalities worldwide.

The COVID-19 crisis has reinforced the importance of the S in the ESG context by placing it at the centre of the discussion, and many companies should consider stepping up their efforts to manage health and safety, address diversity and inclusion, and engage with communities.

Pre-existing economic trends have rapidly accelerated: 

While the global pandemic seems to have put economic activity on hold, it has triggered the rapid acceleration of pre-existing economic trends that can radically change the way we live. These trends include digitalisation, decarbonisation, automation, e-commerce and smart working, all of which have evolved as a consequence of the crisis.                                      These new realities have some important repercussions for a number of ESG issues, including data security and privacy, workforce management, diversity and inclusion, and supply chain management. The way in which companies adapt their business in response to these trends is likely to be a key driver of their continued success.

In conclusion, companies, private markets and financial markets have passed the point of no return in terms of adoption of ESG criteria.

It is expected that the current global crisis will push companies and investors to develop and improve their management approaches and their communications with regard to ESG risks, which will stimulate a dramatic increase in activity worldwide.                                            Given this new reality, companies that are slow to evolve their ESG programmes should expect more difficult future conversations with their shareholders and other key stakeholders.

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2023 syllabus for the certificate in ESG investing