The COVID-19 Crisis is an ESG Issue: Here's What That Means for U.S. Businesses

Most insiders predicted the 2020s would be the time when environmental, social and governance (ESG) factors became a business imperative. A record $21.4 billion flowed into ESG-lens investment funds last year, and investors were clamoring for more ESG information about the companies in their portfolios. 

Then came the novel coronavirus pandemic — and the ultimate test of what ESG really means for businesses and the people they serve. 

As former Unilever CEO Paul Polman told Ethical Corporation last week, the challenge we face is an "acid test" for stakeholder capitalism and the ways in which businesses, governments and civil society work together for the common good.

So, how can businesses step up? How can they best live their values, even as their bottom lines are strained? And how can they ensure their employees, customers and communities are protected? 

On Monday, the global consultancy Brunswick Group hosted a public webinar focused on these questions and more. Their advice overlaps with existing research of the private-sector response in China and elsewhere, and how it applies to businesses now sitting at the epicenter of the crisis.

Protect your frontline workers  

"Our understanding of what is critical national infrastructure and where we need to invest in our society is changed by these events," said Paddy McGuinness, a London-based senior advisor with Brunswick Group, who previously worked in resilience and security under two successive British Prime Ministers. 

"The front line of dealing with this disease are those who, in many societies, have not been as highly valued as you might have thought: the nursing and care staff, the logistical workers, the people who get food onto store shelves, and the people who provide hygiene services," he continued. "In recent years, those workers have been a readily available commodity, and businesses were structured around their availability. Now, we find that they are the heroes in a quite extraordinary way."

As we've reported in recent weeks, the majority of these frontline workers receive little to no paid sick leave benefits. They're working tirelessly to keep the public fed, safe and healthy, despite knowing they're likely to be left out to dry if they get sick. But the way we view them could be forever changed by this crisis, McGuinness predicted. 

"The longer it goes on and the more significant the effect that's evident to people, the more their attitudes will change, and a concept of fairness will creep in," he told business leaders and journalists on Monday. "When we've had events like this in the past — not necessarily epidemics and pandemics, but significant events where there's been a pulling together of society — it has affected the way we think about our obligations to each other, including the most vulnerable, including the lower paid. And I think that will come to the fore."

His predictions dovetail with a recent call-to-action from the business coalition BSR, which last week launched an effort "calling for a modernized social contract for the 21st century." 

"While we are seeing in real time how well the social safety net functions, there are also long-term questions that business would do well to address more forcefully after this crisis is behind us," wrote Aron Cramer, president and CEO of BSR. 

Shift your supply chains toward what's needed 

China was the first epicenter of the novel coronavirus. Although the strict lockdown enforcements made possible by the nature of Chinese government and society likely "cannot be replicated elsewhere," there are lessons to be learned from their response, particularly with respect to business action, said Yan Mei, a former journalist who now oversees Brunswick's operations in China. 

Notably, Chinese businesses moved to "reallocate and redeploy their human resources, retooling people who were let off work because of the shutdowns," Mei said. 

"Just like in New York, San Francisco and other big cities, eateries, cafes and other small enterprises were the first to be hit once the crisis happened, and people lost their jobs," she explained. In response, Chinese e-commerce giants like Alibaba and JD.com created apps to transition small businesses to online orders and deliveries, making use of excess food supply and allowing some people to return to work.  

"All of these restaurants were getting ready for Chinese New Year, and they were storing more than usual," Mei explained. "They were able to use these apps to send packaged foods and to transition workers to deliveries so all that food went to people who needed it and didn’t go to waste."

Meanwhile, manufacturing operations shifted production to critical medical supplies. "There was a push to ramp up the production lines and convert to manufacturing gowns, gloves, ventilators and respirators, and that’s why China now has more to deliver to the world," Mei said. 

We're beginning to see a similar response in the U.S., which the World Health Organization warns could soon be the new epicenter of the crisis, although the early response came mostly from smaller businesses rather than major, U.S.-based multinationals. Local distilleries are using high-proof alcohol to make hand sanitizer, and small fashion labels have enlisted employees working from home to sew medical masks, to name just two examples. More recently, business giants like HP and 3M have stepped into the fray, ramping up production of needed medical equipment, a trend experts predict will continue. And it must. 

Communicate clearly and often

Earlier this month, researchers from MIT's Sloan School of Management similarly analyzed how businesses responded to the spread of the novel coronavirus in China, sharing what worked and what didn’t. Among their suggestions: Clearly communicate what you're doing, detailing pertinent information and offering direct quotes from executive leadership, without bragging or boasting. 

Lanhee Chen, a Brunswick senior counselor based in San Francisco and director of domestic policy studies at Stanford University, echoed this sentiment in a call to action for business leaders. 

"It's really important for businesses to realize that we are in a state of response right now. There is no question we are responding, we are reacting. But we will soon be in a situation where recovery is the key," Chen said. 

Health professionals continue to tell us there is no way to know for certain how long the current crisis will last. "I know it's hard to think about [recovery] in this context," Chen noted. "But it's important to begin to scenario-plan around what all those things might mean and how one would communicate to employees in that situation."

"The other important point is communicating with the outside world and thinking about how you talk to all of the stakeholders that matter to your business," he continued. "People like to hear, yes, you're being responsive to what's happening now, but they also want to hear that you've thought through what it means to recover from something like this."

Researchers at McKinsey & Co. similarly advised business leaders to address the now, while keeping an eye on the future, warning the situation is likely to get worse before it gets better. 

The bottom line: If ESG matters to your business, now is the time to act 

No one can ever be prepared for a human health crisis that threatens such widespread loss of life, brings everyday activities to a halt, and leaves the public so uncertain and fearful. But make no mistake: People are paying close attention to how companies respond — and how they treat their stakeholders when it matters most.

Long story short: If ESG leadership is important to your business, the time to act was yesterday. 

Image credit: Kit Suman/Unsplash