Reshaping the future: post-pandemic sustainability

September 2020  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

September 2020 Issue

Sustainability has become a buzzword in the boardroom in recent years, with international programmes, such as the UN’s Sustainable Development Goals (SDGs), the Paris climate agreement and the Global Sustainable Initiative (GSI), imbuing companies with the moral authority to reset and reshape the world.

Turning the screw on such aspirations is the emergence of coronavirus (COVID-19) – the new reality driving sustainable behaviour. Indeed, the current environment is sharpening the appetite for sustainability at local, national and global levels, compelling companies to develop and embed business practices to ensure they survive and prosper in a post-pandemic world.

According to the World Bank Group’s ‘Proposed Sustainability Checklist for Assessing Economic Recovery Interventions’, short-term considerations – over a six to 18-month period – for governments should be the impact of the pandemic on employment and economic activity, as well as how long it will take to fully implement job creation and fiscal stimulus interventions. The checklist also states that, in the longer term, governments need to consider COVID-19’s effect on: (i) human and social capital; (ii) technologies; (iii) natural and cultural capital; (iv) physical capital; and (v) fundamental market failures.

In terms of the implications of COVID-19 for companies, according to CB Bhattacharya, H.J. Zoffer chair of sustainability and ethics at the University of Pittsburgh’s Katz Graduate School of Business, these can be characterised in terms of people, planet and profit. “On the ‘people’ front,” he observes, “given the disproportionate impact of the pandemic on the lower socioeconomic strata of society, companies must recognise the vulnerability of frontline workers and uplift the rank and file.

“With regard to ‘planet’, the blue skies seen from Beijing to Los Angeles in the past few months and the drop in emissions is a clear signal to the world that global warming is man-made,” he continues. “Going forward, companies must work to re-engineer production, consumption and disposal activities in a way that keeps emissions in check. As far as ‘profit’ is concerned, we cannot survive for long without economic activity. Millions of businesses are failing in the face of the pandemic and as many as 40 percent of businesses may never reopen.”

That said, while the disruption caused by COVID-19 is undeniable, in the view of Matthew Bell, director of public policy at Frontier Economics, its impact will vary from company to company. “This may sound obvious, but a lot of discussion assumes there is ‘the impact’ of COVID-19 on companies,” he contends. “In fact, we are seeing very different impacts on different types of companies. For example, the insurance sector is undergoing a degree of introspection about whether the policies it has written to protect companies and individuals are adequate, as well as their implications for future business interruption, illness and other coverage.

“Elsewhere, the pharmaceutical sector is seeing opportunities in vaccines and areas of public health that were previously off limits,” he continues. “The same is true when it comes to sustainability plans – there is no single message to all. The crucial question for all companies is the degree to which the behaviours of their customers has changed in response to COVID-19.”

Sustainability strategies

To survive and thrive in a post-COVID-19 environment, companies need to implement long-term sustainability strategies that allow them to capture opportunities and shape their post-pandemic futures. In this ‘new normal’ environment, survival is not enough.

In the view of Mr Bhattacharya, there are three steps business leaders can take to help the transition to a post-pandemic world: (i) define corporate purpose; (ii) empower stakeholders; and (iii) collaborate and partner. “A business exists to serve the interests of multiple stakeholders and only by doing that well can it make money for shareholders,” he says. “In other words, profits are a consequence of value creation. And once this philosophy is internalised and articulated by leadership, businesses can take ‘ownership’ of sustainability for the wellbeing of the planet and its people.”

‘Taking ownership’ means looking at the viability of business models over 15 to 20 years,” suggests Aaron Maltais, program director at the Stockholm Sustainable Finance Centre (SSFC) and senior research fellow at the Stockholm Environment Institute (SEI). “The forces shaping our economies post-COVID-19 will increasingly be reacting to long-run challenges and risks,” he contends. “This means that the viability of companies in five years’ time will increasingly be determined by a multi-decade outlook by countries.”

Furthermore, in its ‘Key issues for a sustainable COVID-19 recovery’ analysis, Asa Persson, research director at the SEI, suggests that, although the economic impacts of COVID-19 have been in major, wealthy economies such as China, the US and much of Europe – countries with large national budgets and relatively easy access to credit – a sustainable recovery must also ensure that companies operating in poorer countries are well-positioned to weather the pandemic crisis and drive growth.

“One of the main lessons companies will take away from the COVID-19 crisis is how a health threat with very uneven direct impacts has interacted with global networks to create economic crises across the globe,” adds Mr Maltais. “Some actors may look to reversals of globalisation as the right response, but that does not look realistic or desirable. Instead, companies need to take seriously the warnings that there are several global risks, such as climate change, that may have uneven physical impacts but whose economic impacts will have a harsh global reach.”

Additionally, companies should avoid learning the wrong lessons from COVID-19. “Too many companies will take the view that if it is an emergency, people will be willing to take extreme measures,” suggests Mr Bell. “That would be the wrong message. Emergency measures can only be sustained for short periods. Longer-term, competitive advantage needs to be built on the world after the emergency.”

Embedding sustainability

In a new, COVID-19 impacted reality, it is essential for companies to embed sustainability into a long-term recovery and growth plan. At the same time, significant obstacles need to be overcome to repurpose assets and capabilities for post-pandemic markets.

“Access to capital will be fundamental – there are some ‘low hanging fruit’ of course, for some early environmental gains, but once those have been implemented, the costs will start to increase and I think securing the necessary funds could be a challenge for some,” suggests Ben Stansfield, a partner at Gowling WLG. “Retrofitting properties to reduce carbon emissions will be expensive and technically difficult in some cases – and there will be tensions between landlords and tenants as to where those costs should sit.

“In terms of embedding sustainability into long-term plans, this is best done, at least initially, by putting sustainability on every meeting agenda,” he continues. “If business leaders continually ask, ‘What is the environmental effect of this and is there a better option?’, then sustainability becomes institutionally embedded very quickly.”

Reinventing business models

As we move toward a post-pandemic world, to offset risks, capture opportunities and shape their futures, companies are looking to reinvent their business models in favour of more sustainable options – an approach that will not only help them weather the current environment, but also provides a source of competitive advantage.

“Articulate your purpose and cascade it through the company and beyond,” suggests Mr Bhattacharya. “Define ‘material’ sustainability goals. Entice and empower your employees to join the movement and make sustainability ‘everyone’s problem’. Create and entrench a culture of sustainability within the company. And very importantly, collaborate with others, including traditional competitors, to solve problems, such as deforestation, that no one company can solve alone.”

Gregor Vulturius, head of engagement and operations at the SSFC and research fellow at the SEI, believes that companies need to spend much more time and resources on improving supply chain risk management, as COVID-19 has shown that just-in-time production and single-supplier policies leave many dangerously exposed to sudden disruptions. “To tackle the issue of vulnerable supply chains, companies will need to rethink how they assess and manage complex risks with transboundary impacts, deal with additional costs of necessary supply chain redundancies, and develop risk-mitigation and sustainability policies for all suppliers – including suppliers of suppliers,” he suggests.

Moreover, companies need to rethink their purpose in a world that increasingly values resilience, sustainability and inclusiveness. “This makes sense not just from an economic point of view – it also helps companies to renew their social licence to do business,” says Mr Vulturius. “Companies should use the COVID-19 crisis as an opportunity to review how their business model fits in the broader context of the SDGs and the Paris climate agreement”.

A lever for economic growth

As companies across the globe seek to rebound as quickly as possible from the devastating impact of COVID-19, sustainability will likely prove a crucial lever in building a very different post-pandemic world.

“The post-COVID-19 world will no doubt look different in many ways – more remote work, less flying and the namaste possibly replacing the handshake forever,” suggests Mr Bhattacharya. “Sustainability will undoubtedly be more front and centre as the recovery continues and it can be a great positioning and communication strategy for companies, and thus be a powerful lever for those who are strategic.

“Progressive companies already know that sustainability and long-run profitability go hand in hand, but there are always sceptics and disbelievers in this model who will try to maximise short-term profits at all costs,” he continues. “My hope is that there will be a great rise in employee and consumer activism and companies that continue their old ways of profit maximisation at all costs, without regard for people and planet, are shamed and starved and ultimately booted out.”

In Mr Stansfield’s view, the impact of COVID-19 is such that companies across all sectors and in every jurisdiction will need to undertake further measures to enhance sustainability. “Environmental performance is already a differentiator for customers and investors,” he suggests. “Post-COVID-19, we may see some drop-off in environmental performance, for example as we rely on private cars rather than public transport, but the overall trend to decarbonise is sure to continue, if not accelerate.”

In less than six months, COVID-19 has transformed the world – exacting a massive human, economic and social price. And while massive fiscal recovery packages have been introduced to provide urgently-needed support, a great deal of uncertainty and hardship remains.

“An ongoing pandemic and global economic downturn do not put us in a position of strength to address long-term sustainability challenges,” reflects Mr Maltais. “However, ending the acute phase of COVID-19 and being much better prepared to prevent future pandemics is clearly central to the entire sustainability agenda.”

© Financier Worldwide

BY

Fraser Tennant