The new normal needs relevant and uniform corporate disclosures like those advanced by the Sustainability Accounting Standards Board, the Global Reporting Initiative, and the Task Force on Climate-related Financial Disclosures.
As the world enters the Fourth Industrial Revolution, a ‘black swan event’ has changed how we see, think, and conduct our lives. The novel coronavirus (COVID-19) pandemic has amplified the financial strain on governments, businesses, and individuals. Corporate relationships with stakeholders are changing drastically and abruptly as the general public, policymakers, and investors more closely scrutinize social and environmental impacts.The story so far
Corporate social responsibility has until recently been voluntary for companies wishing to improve their public image — something ‘nice to do’ to demonstrate good corporate citizenship. Since the 2008 global financial crisis, a focus on environmental, social, and governance (ESG) performance has driven corporations to report on broader environmental impacts for social accountability to themselves, stakeholders, and the public.
More generally, the focus has been on companies' impact on society — adherence to diversity and inclusion principles, climate action, sustainability efforts, and philanthropic funding — and less on remedying society's challenges. Corporate social responsibility has thus moved from a fringe part of business typically confined to window-dressing toward conveying an empathetic corporate image.
The pandemic has put corporate social responsibility to the test and accelerated its transition from ‘nice to do’ to ‘must-do’ due to the enhanced risk of rising economic and social inequality with potential adverse effects on citizens' lives and livelihoods. In a rapidly evolving and interconnected world, companies realise that they are responsible to shareholders and stakeholders alike — employees, suppliers, customers, and communities—in a modern re-imagination of stakeholder capitalism.
Businesses have taken the crisis as a wake-up call to boost corporate immunity. They have responded by linking profit with purpose. Some of them have even donated instead of selling their products and services.Seven distinct developments have catapulted corporate social responsibility to the frontline of focus when resources are restricted, and survival is threatened. Corporations are:
- Embracing policies to keep employees safe at work and promoting safe working conditions, guaranteeing salaries, promoting health and wellness, and flexible leave policies
- Providing enduring, reliable services to customers
- Donating COVID-19 test kits and other medical supplies to many countries around the world
- Protecting broader communities, including vulnerable populations where businesses operate by supporting efforts to maintain critical infrastructure and delivering healthcare, medical supplies, groceries, and staples worldwide
- Running advertisements promoting pro-social behaviour, like hand washing and social distancing
- Reconfiguring production to manufacture health care equipment ventilators, personal protective equipment, and hand sanitizers for the first time; and
- Dealing fairly and ethically with suppliers and supply chain actors, including timely and prompt payment and financial support.
However, in a rush to contribute, businesses need to carefully assess where their resources and capabilities make them most suitable to respond to the emergency. Venturing into non-core areas may be saddled with risks due to a lack of know-how.Rewriting the playbooks
COVID-19, an ‘unknown unknown’ risk, has exposed the lack of adaptability and resilience in many companies. As corporations prepare to navigate the ‘new normal’, companies need to rewrite their playbooks by elevating corporate social responsibility's importance in C-Suites and corporate boardrooms while integrating it with critical environment, social and governance (ESG) reporting factors to gauge the sustainability and ethical impact of an investment.
Notably, while corporate social responsibility encourages companies to plough a portion of their profits back into society, ESG aims to boost corporate value by promoting environmentally and socially responsible behaviour through better corporate governance.
Corporate social responsibility leaders have successfully marshalled resources and prioritised them to respond to the current crisis, giving the ‘S’ of ESG a big boost. However, this should not be at the expense of ‘E.’
When life was ‘normal’, after all, we were already in a crisis—the climate crisis.Companies' boards need to take note of this fact and initiate bold, creative steps to ensure that sustainability remains a top priority for defining long-term resilience.
In the future, boards are unlikely to get immunity for being underprepared for tackling various climate change risks, which are ‘known unknowns’. And ‘G’ will remain vital for defining their companies' legacy by effectively and efficiently balancing ‘E’ and ‘S.’
Asia still has much catching up to do to make ESG an integral part of investment strategies. This is mainly due to a lack of understanding of ESG issues and how they work on the ground, and insufficient evidence of tangible investment benefits in the absence of data.
From the pandemic, the fallout is the drive and pressure from investors in Asia to promote sustainable financing by mandating the integration of ESG factors as prerequisites for investment analysis and decision making.Measuring it right
The renowned management guru Peter Drucker's adage, "If you can't measure it, you can't improve it," is the bellwether for corporate social responsibility. Measurement can provide benefits such as helping companies make better decisions about social initiatives needing support, improving the efficiency of existing programmes, and convincing sceptical stakeholders about the value of their actions.
Robust reputations can help improve long-term business performance as investors are more likely to purchase stock in companies with strong ESG scores and consumers patronise businesses willing to face up to social and climate imperatives. Strong reputations also help in attracting and retaining top talent.
Announcements by investment firms regarding the types of companies and instruments they would and would not invest in increasingly centre around corporate social responsibility irrespective of whether governments enable the adoption of sustainable market practices through regulatory or fiscal interventions.
The Green Bond Principles, the Social Bond Principles, and the Sustainability Bond Guidelines have become the leading global framework for issuance of green, social, and sustainability bonds by attracting private capital to finance projects that provide environmental and social benefits. Companies need to move towards more relevant and uniform disclosures like those advanced by the Sustainability Accounting Standards Board, the Global Reporting Initiative, and the Task Force on Climate-related Financial Disclosures.The road aheadThe COVID-19 pandemic has taught us a valuable lesson: ‘We are all in this together’, which encourages businesses to be more socially responsible. ‘Greenwashing’ and lip service will no longer survive public scrutiny. With smart use of data and fusing finance and technology with social innovation, they can partner with government and society to secure the future by accelerating the transition to a greener, healthier, and more inclusive economy.
Corporate social responsibility presents a pathway to protect consumer trust, investor confidence, and workforce loyalty. In the post-pandemic world, the most thriving businesses will be those with a strong commitment to corporate social responsibility, practical strategies, and efficient implementation.The author is a financial sector policy and regulatory expert with a multilateral bank. The views expressed are his personal.