Sustainability in the time of COVID-19

In the time of COVID-19, as organisations move from survival mode to stabilisation, recovery and growth, a critical element for long-term sustainability will be how survival mode was managed. 

Cutting costs, maintaining productivity and ensuring financial viability are imperative for business continuity. But this is not the time to set aside company values, or to forget the multiple stakeholders with an interest in your business and those who are affected by your operations. Overlooking how your actions during the crisis will be viewed by investors and regulators in the future would be unwise. 

Key stakeholders will be watching how organisations assess and manage risk, make decisions and operate through the current turmoil. The importance of the immediate crisis response to stakeholder perceptions of the organisation has likely already passed. These stakeholders are now returning their focus to an assessment of an organisation’s capacity to achieve sustainable outcomes in the evaluation of long term performance. 

Critical stakeholders

Investors

In 2019, it was estimated that over $980 billion dollars – or nearly half of Australia’s professionally managed assets – are being invested with a responsible investment approach,[1] and an appetite for these investments is unlikely to decline. 

A responsible investment approach incorporates environmental, social and governance (ESG) considerations into investments and can either positively or negatively screen out certain investments that are considered desirable (e.g. renewable energy) or undesirable (e.g. gambling, tobacco, and increasingly fossil fuels). It also seeks out impact investments whose purpose beyond financial gain is to have a positive social or environmental impact. 

Organisations will ignore or de-prioritise the sustainability imperative at their peril.  

Regulators

This week, in response to COVID-19, the Australian Securities and Investments Commission (ASIC) informed market participants[2] it will be increasing market supervision to provide confidence to investors that they are being properly informed and protected from the risk of manipulation and abuse. While recognising that some supervisory work is now not possible, ASIC intends to continue to monitor firms remotely – and has noted specifically that enforcement action will continue. 

While there may be changes to the timing of such actions, COVID-19 should not be seen as a free pass. Similarly, the Australian Prudential Regulation Authority (APRA) has adapted its 2020 agenda to prioritise its COVID-19 response and will focus on monitoring the impact of COVID-19 on the ‘financial and operational capacity of regulated institutions’.[3] 

The practical limitations imposed on the community by the COVID-19 restrictions will impact the way that the regulators meet their obligations and may delay the time required to take some actions. But there is no reason to assume this will sway these agencies from the agenda they have been mandated to follow in the wake of the Financial Services Royal Commission. 

There will also be an even greater focus on any activities that involve consumers who require protection from the economic impacts of the pandemic. Corrs has explored the issue of COVID-19 and the three key compliance challenges for businesses under the Australian Consumer Law in a previous article. When the immediate crisis subsides, and the behaviour of organisations is examined with the benefit of hindsight, a ‘COVID-19 defence’ will not withstand scrutiny. 

Consumers

Organisations are being called on like never before to give practical support to the fight against COVID-19, but not all businesses are protecting their resilience in the long term. 

There are heartening examples of organisations restructuring their factories to provide vital Personal Protective Equipment (PPE) for healthcare workers, using their supply chains to assist not-for-profits to help vulnerable communities, funding COVID-19 treatment research and working collaboratively in recognition of a common need to resolve the crisis.[4] But not all organisations are doing the right thing and consumers and stakeholders will be alert to companies who disregard the rights of their own workers, or those in their value chains. 

There are increasing reports reminding us that many of the victims of COVID-19 are those we can’t see – the ones who make products for Australians, and whose faceless labour is discarded as COVID-19 affects supply chains and disrupts manufacturing around the world.[5] 

What next? 

Ensuring your business meets the demands of investors, regulators and consumers will require, among other things, a commitment to the sustainability agenda. 

Your business’s environmental and social impact, and the manner of its governance, remain critically important to short term resilience and long-term viability. Importantly, consideration of sustainability issues can contribute to and strengthen decision-making at a time full of risk and uncertainty. 

The following three approaches can help:

1.    Set the tone from the top. No surprises here – decision-making can have elevated risks in high stress environments when there is huge pressure on staff and managers to drive performance. This is the time that reaffirmation of a business’s purpose and values can provide a solid framework for decision-making by managers at every level. Building and consolidating the expectation that people will do the right thing, even when under pressure, will help structure decisions in line with company expectations. 

2.    Review sustainability targets. Ensure that sustainability targets, KPIs, goals and settings reflect the new environment, without compromising on the commitment to the journey. This will embed progress, while enabling the possibility of success. COVID-19 will have resulted in temporal and resource limitations unforeseen when targets were set, so now is the time to review the risk matrix, identify priority tasks, and reset sustainability goals. 

3.     Consider a human rights based approach to sustainability. Where decisions are really difficult, and there is both risk and uncertainty, a human rights-based approach can help answer not only the ‘can we’, but the ‘should we’ question. A human rights-based approach asks business to consider their business conduct and practises against the legitimate rights of stakeholders (employees, directors, shareholders, clients, customers, community members and others impacted by your supply chain and operations) and the responsibilities on business to respect all human rights. The UN Guiding Principles on Business and Human Rights (UNGPs) provide a framework for businesses to identify, mitigate and prevent adverse human rights impacts, and are considered leading guidance for businesses on the implementation of their human rights responsibilities. We have argued that the UNGPs provide a framework for ethical decision-making by boards and managers alike, and that if properly applied, the UNGPs can help business answer not only the ‘can we do something’ question, but also the ‘should we do it’ question.

Sustainability is good business and good for business. The ESG criteria help determine the future financial performance of businesses, and are not disappearing because of the emergence of the global COVID-19 pandemic. While sustainability is sometimes seen as overwhelmingly complex, and an attractive add-on in a crisis, in actual fact a crisis is the very time that sustainability can help strengthen decision-making, reduce risk by enhancing a compliance culture, and build trust and reputation.