ESG: climate change and responsible strategy for businesses in the time of COVID-19

An effective ESG strategy is strongly recommended to build long-term trust and credibility with stakeholders and secure a more successful and stable business

Still, E, S, and G. Prior to COVID-19 the ‘E’ was clearly on the top of most organisation’s agenda, but COVID-19 now seems to increased the focus on the S and the G as well, putting more pressure on business leaders. Long-term sustainability is now in the centre of attention in most corporate organisations. COVID-19 has highlighted the importance of responding quickly and effectively to new ways of working, forced organisations and stakeholders to adopt our ‘new reality’. It has also demonstrated how a significant event (COVID-19) can have an immediate impact on businesses and society, which is dramatically re-shaped our life. The number of stakeholders is increasing – from employees and costumers to regulators and investors – who are expecting businesses to take more significant actions and a more sustainable corporate behaviours. An effective ESG strategy is strongly recommended to build long-term trust and credibility with stakeholders and secure a more successful and stable business.

Climate change – is this a board-level concern?

Many companies are now under pressure to understand climate-related risks and comply with the necessary regulations. Many organisations have taken it to their board-level concerns, but there are still questions if all organisations are ready to identify the risk they face?

Another reason for climate change to be on the board agenda is brand value. Brand value is now closely associated with the actions of the company concerning climate change, reducing carbon emission, and finding sustainable ways to manage their supply chain. It is currently expected to demonstrate good intentions towards stakeholders and indicate a clear and long-term plan that meets stakeholders' expectations.

The Sustainable Development Goals (SDGs) which are urgent calls for action by all countries are still developing. However, goal 13 indicates to take urgent actions to combat climate change and its impacts. Meeting this target by 2030 will require economic transformation, which is led by a dramatic business model change. Therefore, it will eventually require business leaders and boards to put this item permanently on their agenda. Before COVID-19 organisations were already under pressure to address environmental issues, but it looks like in the future, it will only get stronger.

Businesses are recommended to focus on energy savings, Net-Zero and Carbon Neutral, fuel switching wherever applicable, better and more sustainable supply chain management, sustainable finance, use of environmentally friendly packaging and materials, and effective brand management to achieve a longer-term climate risk management. On this note, it is also fair to say that different industries require slightly different commitments. Manufacturing, mining chemical, and oil companies face bigger challenges when it comes to company strategy to climate-related and ESG initiatives.

Importance of planning for future risk

Corporate leaders can now apply ESG tools such as performance ratings or financial metrics to help overcome challenges and create governance frameworks for ESG standards. Many firms are focusing on implementing ESG strategies and investing in third-party resourcing to address the gaps in their system. The COVID-19 pandemic, tackling emission goals, practising good governance, and climate change are on the top list of the World Economic Forum as future risks. It feels like we are entering into a new reality where stakeholders and businesses are facing unprecedented risks.

Can organisations address effective risk management and keep the financial risk at a minimum?

COVID-19 has shown us that businesses need a dramatic turn in how they address risk management. Business planning has become more important than ever before, and corporate leaders should focus on how to manage ESG related risks. They should identify their business risks and what their opportunities are. They also should enhance their supply chain and look at how they could re-route their supply chain, use more sustainable suppliers and take a holistic view over their organisations.

ESG is here to stay and will continue to be an important topic. Board members and business leaders are expected to see increased pressure and more specific questions related to ESG during the following proxy seasons, in my opinion.

In the upcoming years, risk and strategy relation to ESG will be the key to help to shape our economy. While many companies may be performing well in ESG strategy, are they considering what their subcontractors in their supply chain have done for their ESG? Their failure, if reported, could reflect poorly on them.

Boglarka Radi

Boglarka is a member of The Chartered Governance Institute

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