THE Covid-19 pandemic has afforded businesses the opportunity to “glimpse the sustainability revolution” that is on the horizon, even as those same businesses struggle to maintain their footing throughout this global crisis, says Bain & Co.
“Telework and virtual meetings are showing companies that they can reduce travel, with satellite images revealing the dramatic decline in air pollution. Companies are seeing the benefits of going the extra mile for employees, customers and suppliers, and as they collaborate with governments to police false and misleading Covid-19 information on their platforms, tech companies may see the potential power of fighting misinformation about climate change,” said the global consultancy.
In a report titled “Covid-19 gives sustainability a dress rehearsal,” the consultancy offered insights into the survivability of sustainability initiatives in the face of the global crisis, as well as how the pandemic is a “dress rehearsal” for dealing with climate change. It also underlines the importance for executives to build capabilities and resilience to deal with low-probability scenarios.
It noted that this has been an opportunity for businesses to test their sustainability agendas, while offering companies an opportunity to tackle an “expanding range of environmental, social, and governance (ESG) challenges.
“The risk of a pandemic was known, and yet the crisis has exposed a lack of adaptability and resilience at many companies. After this, boards and executives will not be forgiven for under-preparing for various climate change scenarios,” said Bain & Co.
As it stands, Covid-19 has made sustainability harder in the short term, unleashing headwinds that threaten to limit the corporate response to the sustainability imperative. Many businesses have also found themselves in a difficult cash position, where anything not critical for survival is deemed unnecessary, making ESG matters seem like issues they can deal with after the crisis is overcome.
“Across society, the pandemic could trigger a reversal of sustainability trends. In the US, the Environmental Protection Agency has temporarily relaxed pollution enforcement to allow companies to focus on survival – with no end date set,” noted the consultancy.
It added that some sustainable efforts have been backsliding, with some consumers and retailers rejecting reusable grocery bags as unsanitary, with many cities and states in the US reversing recent bans on plastic bags. Stores there are also readopting throwaway plastic containers or plastic wrapping on fruit and vegetables.
It does not help that, not only are some companies taking no action, some are even accelerating these developments. Examples include a plastics industry group asking for a halt to state-level plastic bag bans, and a petroleum lobbying group pushing for the relaxation of greenhouse gas emission enforcement.
“Unpredictable and rapid changes in demand also inhibit advance planning, limiting the ability of companies to respond sustainably. Lower oil prices could make the business case for sustainability moves, such as renewables and bio plastics, less compelling,” said Bain & Co.
Longer term tailwinds
However, the consultancy has also noted that there are several corresponding tailwinds for each headwind threatening sustainability, with the tailwinds also viewed as longer lasting.
“The pandemic is showing companies the options for flexibility in paid sick leave and sponsored childcare, as well as work schedules and location. While the crisis also exposes weaknesses in existing operations, it also opens the door for companies to shorten supply chains and make them more transparent, socially conscious, and environmentally friendly,” it said.
At the same time, Covid-19 has also caused more people and companies to be more attuned to health and wellness. Bain & Co believe that the development of immunity-boosting foods, providing telemedicine services and biomonitoring are markets that “undoubtedly will grow during the crisis and beyond.”
Furthermore, the pandemic has redefined the relationship between companies with governments and other stakeholders. Some governments have acted to ensure a greener comeback, such as the European Council stressing that its fiscal response to Covid-19 does not mean it will abandon its Green Deal for Europe principles.
On the Dow Jones, the US Securities and Exchange Commission has also rejected requests from several firms to block or delay shareholder motions, showing that the crisis will not mean an end to investor pressure on sustainability issues.
At the same time, stocks of companies with strong ESG credentials have also proven a safer haven in this period of market disruption.
“In fact, the pandemic could elevate ESG factors as investors voice more concerns about employee benefits, supply chain management, and other ESG priorities. ESG investing was already poised for growth,” said Bain & Co, adding that a group of 300 mutual funds that consider ESG factors when making investment decisions saw inflows of US$21.4 bil (RM93.61 bil) in 2019 compared to US$5.4 bil a year before that.
“Now, the relatively lower losses of such funds against the overall market may accelerate that trend,” added the consultancy.
All in all, the pandemic has highlighted the importance of critical ESG factors, and that sustainability will remain a top priority even as companies focus on survival.
“In many ways, the current pandemic serves as a dress rehearsal for the longer-lasting and irreversible impacts of the climate crisis, underscoring the urgency of climate change action. It has shown that anticipating a risk is not enough. Although the pandemic risk was known, many companies still found themselves woefully unprepared for the disruption it has brought,” says the consultancy.
Bain & Co further stated that the task at hand is to ensure that a company is adaptable to known scenarios, while remaining resilient to unexpected scenarios, as they emerge. The consultancy goes on to note that the circumstances and implications of Covid-19, while devastating, have also illustrated how quickly behaviours and actions can change when push comes to shove.
The consultancy called for business owners to act now to help mitigate the effects of the outbreak on sustainability, as well as to come through stronger on the other side. Business owners will also have to plan now for medium term actions that will determine a sustainable future. – April 21, 2020
