The Future of Corporate Sustainability Initiatives in a Post-Covid-19 World
The International Energy Agency (IEA) estimates that the CO2 emissions can reduce as much as 8% this year as compared to 2019 – making it the largest ever decline. The water of the river Ganga in Haridwar has been classified as ‘fit for drinking’ (after chlorination) after decades. March air pollution was 46% down in Paris, 35% in Bengaluru, and 38% in Sydney, compared to the previous five years, as per NASA’s research.
There has been an abundance of such stories on the improved air and water quality in our pandemic affected world. While this gives us a preview of how a more sustainable world could look like, it is a short-term impact of an economic crisis that is upon us. The onus of continuing to make it a long-term reality lies in the direction the government, businesses, and individuals take. Will the focus on sustainability go away in the name of putting the economies back on their feet? Will the sustainability commitments that corporates have made no longer be important?
Over the past few years, ‘Going Green’ has been the buzzword in the industries, with most firms setting goals towards adopting renewable energy, circular economy, lesser wastage, sustainable packaging, etc. For instance, several companies such as Accenture, AB InBev, 3M, Burberry, Citi Group, eBay, General Mills and H&M set their goals to shift towards 100% renewable energy usage across their operations by 2025 or 2030 in a staggered manner. But with the anticipated recession, there is a fear that many companies may put aside such goals and purely focus on building profits. However, this pandemic has essentially revealed the degree of negative environmental impact of our economic activities, and should be taken as a wake-up call. It highlights the vulnerability of our economies and thus the need towards minimizing future shocks, particularly those due to climate change. Corporates have been provided with an opportunity to re-think their growth plans and use sustainability as a leverage to emerge stronger.
Amidst the on-going fears, several firms have announced loud and clear that they are committed towards continuing to work for a better planet. While publishing its 2019 sustainability report in May 2020, Mondelez International – a leading food & beverages company – has maintained stance on its 2025 goals towards sustainable snacking. Dirk Van de Put, Chairman and CEO of Mondelez, said “As we collectively manage the global impact of COVID-19, now more than ever is the time for companies to do what is right and drive sustainable business growth at scale.” In May 2020, US-based coffee chain, Dunkin Donuts, also announced its commitment of doubling the number of energy efficient restaurants it has by 2025. Similarly, other corporates such as Caterpillar and P&G also announced that they will continue their activities towards making their operations more environmentally and socially sustainable.
As an effect of the current crisis, ESG (Environmental, Social and Governance) investing is expected to witness greater interest. Strong ESG practices indicate high business resilience and thus ability to survive a crisis better than the peers. According to an April 2020 study by S&P Global, 12 large exchange traded and mutual funds set up with ESG criteria outperformed S&P 500 index during this pandemic. Further, along with environmental considerations, investors’ focus has grown towards the ‘S’ part of ESG, i.e. the social aspect. Companies that treat their stakeholders, such as employees and suppliers, better are more likely to attract investments. The disease has shaken up investors to demand more ESG commitment from the corporates, with several of them explicitly indicating this shift towards ESG in their portfolios. In the past week, Deutsche Bank published its target to increase its portfolio of sustainable investments to 200 billion euros by 2025. BlackRock, in its Q1 2020 earnings call, said “We see a sustainable investing wave playing out in financial markets over the coming decades” – along with indicating an immediate shift in 2020’s fund flows towards incorporating ESG practices as an evaluation criterion. Global Head of Research at Barclays Investment Bank, Jeff Meli, in an interview to the Wall Street Journal also mentioned concerns over short term market volatility and added that this pandemic will accelerate focus on ESG from an investor perspective.
Thus, as the realization dawns that even low probability events, such as pandemics, can actually occur and then disrupt entire systems, focus on corporate sustainability needs to be increased now more than ever. With the emissions reduction currently happening in the world as most business and human activities have come to a halt, the degree of linkage between our growth and global environmental destruction has become apparent. It is imperative to decouple the two and reduce the risk of climate change. Along with that, social sustainability initiatives need to be taken into account to ensure people and businesses can grow together. Corporates, investors, and governments need to continue to work hand-in-hand towards a sustainable world while fighting this pandemic that is looming upon us.