COVID-19 has transformed many areas of our lives, but what does it mean for a company’s licence to operate? As governments distribute public funds to businesses to keep them afloat through the global lockdown, will they expect that companies create greater public value on the other side, and will this be based on legislation or decided in the court of public opinion?
Just as the global financial crash in 2008 exposed gaps and loopholes in the financial system that governments have used legislation to plug, some observers note that similar measures could be suited to prevent similar catastrophes should the same thing happen again. Banking regulations were put in place to ensure that banks were more resilient to shocks following the crisis. The coronavirus is a similar shock that has exposed weak spots in businesses, particularly those who take more value from the world than they create.
P.C (Pre COVID-19), there had been a growing movement for businesses being held to account for their actions in society and thus spurring a changing landscape for how they are valued. Now more than ever, companies need to be front-footed and mindful of opportunities and risks in the evolving ESG landscape so that they maintain their licence to operate in this quick-changing world. The present situation is putting emphasis on the areas every company needs to be on top of, ensuring that they can clearly and definitively answer WHY they exist and HOW they contribute to society beyond philanthropic endeavours. Those unable to clearly articulate their role in society will at best be ignored; at worst, maligned and cast as a corporate villain.
Businesses that are already putting purpose at the heart of their strategy need to act with even greater agility and pace. COVID-19 undoubtedly disrupted financial markets, however shares of companies focused on ESG issues outperformed as the virus spread. Data from MSCI has shown that corporate bonds and equities with high ESG ratings markedly outperformed the index recently. It may be that ESG business strategies won’t just become commonplace but mandatory in the coming years. To futureproof organisations’ licence to operate, there has never been a better business case than there is now.
Charles Hummel believed “your greatest danger is letting the urgent things crowd out the important”. What does that mean for business? At a time when organisations are facing enormous pressures, including increasingly complex supply chains, disruption to working practices and tighter markets, they also need to ensure that every step they take and choice they make is fair and ethical. Regulators are sure to be taking a closer look, but in reality, it isn’t just Big Brother that’s watching – everyone from consumers to customers to employees to NGOS, is looking to see how companies are supporting the recovery process. From clearly setting apart the good from the bad and tracking CEOs’ reputations post COVID to multinational businesses joining forces to prioritise green recovery.
Businesses need to make bold choices and invest in areas they can lead, galvanising others to follow and delivering tangible results. Partnerships should be leveraged to create impact at scale and value creation must be prioritised over value extraction.
We believe it isn’t an entirely new normal that we’re facing – it’s a fast-tracked version of the road we were already on. And the good news is that we are all in ‘pivot’ mode now, which means we are united in making the right choices post COVID-19 to favour those who drive positive change in society.
While COVID-19 may have turned the world upside down, it has also spotlighted everyone’s role in society and exposed what we truly stand for. Whether that’s personally as consumers or how we run our businesses. A systemic socio-economic transformation can’t happen in silo; but with a combination of greater emphasis on ESG in business strategy, enhanced ESG impact measurement, new regulatory pressure, and brands being held to account by consumers and employees, we can all pull in the right direction.