THERE is a need for companies to relook at business models with a focus on sustainability, with renewed attention to the importance of corporate transparency on sustainability issues, according to AmBank Research chief economist Anthony Dass.
“There are growing environmental, political and social pressures for the world to find a more sustainable and responsible path towards development. Organisations are expected not only to apply socially responsible practices but also to become responsible business leaders.
“More organisations are expected to establish and operate ethical value chains and run their processes with integrity. In short, it is all about bringing renewed attention to the importance of corporate transparency on sustainability issues,” said Dass in a research note.
The economist noted that since the Covid-19 pandemic the need has arisen for businesses to address complex supply chains and become more transparent, with a growing focus now on how businesses are responding to the pandemic.
“The emphasis is on board composition and quality, environmental risks and opportunities, corporate strategy and capital allocation, compensation that promotes long-term growth, and human capital management.
“In short, it is all about bringing renewed attention to the importance of corporate transparency on sustainability issues. It is time to relook at business models. The model should focus on ‘sustainability’ which then looks at resilience, reforms and reimagination,” said Dass.
Dass also noted that, while managing Covid-19’s immediate impacts will be the top priority for businesses, reporting historical environment, social, and governance (ESG) data and performance remain essential.
He added that while a delay in this year’s reporting is understandable, businesses should still strive for the same level of coverage as previous years and continue to improve their disclosures. The aim of this, he said, is to ensure that the performance of the businesses in key social issues is even more thoroughly examined than usual.
“Besides, accountability is vital in this new reality. Reports should provide a sustaining account as to how businesses are responding to the pandemic. The degree to which companies do this now or in the future will depend on which part they are in their reporting cycle,” said Dass.
He also noted that businesses need to explain decisions made during this time, and make forward looking statements about how they intend to “build back better” in the future, regardless of which cycle businesses are in.
“Numbers must be backed by narratives. The reduction in business operations and travel due to the pandemic virus will likely reduce greenhouse gas emissions and other environmental impacts.
“Similarly, Covid-19 will impact many other metrics such as diversity, employee engagement and supply chain labour compliance.
“It will be essential for businesses to provide a narrative that identifies what change in historical performance relates to Covid-19 factors and what change results from previously existing plans – numbers on their own will be impossible for readers to interpret.
“It will also be important to provide a forward-looking narrative explaining their potential trajectory once Covid-19 is behind us,” said Dass.
Besides reputation, he noted that other important drivers of focus include business continuity, economic inclusion, and public safety considerations.
“Given the growing attention across the board from investors to media, companies will need to increasingly focus on social issues to demonstrate their responsiveness to the top priorities of the day. Collaboration with industry peers to ensure comparable Covid-19 disclosures is vital,” he added.
Sustainability reporting is more important than it has ever been, according to Dass, and it will be critical to understand how Covid-19 may impact sustainability reporting over the long term.
He called on businesses to reexamine the material assessment and its integration into enterprise risk management, with a significant increase in connectivity between sustainability and financial reports.
“Digitalisation will offer important insights into the real impact of companies and their operations on society and the environment. Technology will help monitor the application of environment, social and governance (ESG) with the aim of investing more into sustainable products.
“While the ESG issues that investors were looking at prior to Covid-19 still hold, the pandemic has placed a heightened importance and increased scrutiny on how businesses address the S in ESG. The focus is on the treatment towards its employees, suppliers and the communities in which they operate while naming and shaming good and bad actors along the way,” said Dass.
He added that, to come back stronger from the pandemic, which had caused unprecedented disruption, more integrated, comparable and standardised reporting is needed.
“Such reporting can meet the new information needs brought to light by the pandemic and strengthen business decision-making, risk management processes and overall performance in the long term,” said Dass. – Aug 5, 2020
