The moment of reckoning
Stephen Butler, Director of Stakeholder Engagement, outlines why companies need to focus on the social in life after lockdown.
2019 was undoubtedly the year the world woke up to the promise of climate catastrophe.
It was the year Greta Thunberg’s words echoed around the world: “You have stolen my dreams and my childhood with your empty words,” she said. “The eyes of all future generations are upon you. And if you choose to fail us, I say we will never forgive you. We will not let you get away with this. Right here, right now is where we draw the line.”
In 2020 and beyond a reckoning is to be had, as the eyes of the world will be focused not just on environmental issues, but also social ones, specifically on how companies looked after their employees, customers and communities.
And indeed, those businesses that gained our trust through actions and behaviours during this crisis will benefit from increased customer loyalty, enhanced brand and reputation, and will be able to innovate more effectively.
Below we outline the steps companies should take to communicate their social value and impact.
Lead with a social purpose
The pandemic has made it easy to spot those companies that live their purpose vs those who see it merely as a tagline.
A purpose is a key tool for building trust with employees, customers and communities. And there have been some great examples of leading with purpose in recent weeks:
• Fashion house Burberry making masks and gowns for the NHS, in the Yorkshire factory where its trademark trench coats are made.
• Morrisons changed its core purpose to provide reassurance to customers during the COVID-19 pandemic and reflect the extent of the role it sees itself playing in ‘feeding the nation’.
At Luminous, we believe that by getting purpose right and incorporating the most impactful sustainability issues, businesses are better placed to meet the demands and challenges of an uncertain future.
In short, if you create a strong corporate purpose underpinned by sustainability goals and targets, and hire staff who believe in your proposition, the benefits of implementing purpose – and sustainability-driven measures – far outweigh any costs.
Our approach starts with a simple yet powerful question:
What role can you play in developing a sustainable world?
We help corporates answer that question to derive an authentic, credible and future-facing purpose, across the nexus of:
• global megatrends
• cultural context and business reality
• brand and values
• sustainability strengths, issues and impacts.
If your purpose answers these questions, you are on to a winner; if not, then it’s time to re-evaluate.
Do the right thing by your stakeholders
How companies treat their employees and suppliers will receive scrutiny over the months to come. In fact, in April Legal & General Investment Management (LGIM) warned it would hold companies to account if they fail to treat their stakeholders well.
Sacha Sadan, head of investment stewardship at LGIM, said the COVID-19 crisis would strain social and financial systems significantly, but also highlight how companies looked after various stakeholders.
“We encourage companies not to focus solely on their shareholders but to focus on stakeholder primacy and include all stakeholders, especially their employees, supply chain relationships, the environment and the communities in which they operate,” he said.
We would recommend firms consider what policies and actions they might take to bolster their social credentials, by answering the following questions:
• How are you supporting employees during the crisis?
• What are the cost implications of human capital decisions being made?
• Are there union or contractual obligations that may impact the decisions made around human capital management?
• What efforts are being taken to ensure that employees remain engaged? If working conditions have changed, what steps have been taken to ensure employees can remain productive and efficient?
• What actions has the company taken to support customers who may be facing financial challenges as a result of the COVID-19 disruption?
Show leadership
The 2020 Edelman Trust Barometer Spring Update: Trust and the COVID-19 Pandemic reveals that half of the people believe business is poor, mediocre or completely failing at putting people before profits; only 43% believe that companies are protecting their employees sufficiently from COVID-19, and 46% do not believe business is helping smaller suppliers and business customers stay afloat.
The report goes on to say that the poor performance of the business during the COVID-19 crisis is further seen in the lacklustre assessment of CEOs. Fewer than one in three respondents (29%) believe CEOs are doing an outstanding job responding to demands on them placed by the pandemic compared with scientists (53%) and government leaders (45%).
Empathy-driven leadership is critical to communicating well and building trust during challenging times, by clearly communicating colleagues’ safety, explaining their response, conveying uplifting stories, demonstrating purpose before profits, and providing reassurance to investors by emphasising the resilience of their strategies and business models.
Report the data
It’s fair to say that the S in ESG has been the weak link in investment analysis so far, as investors have lacked a shared framework to assess companies’ approaches.
As companies begin to report on their social aspects, it will require a mix of qualitative and quantitative information.
A good starting point is the SASB which provides a useful materiality map for social activities by sector.
More broadly, however, companies should report on how COVID-19 has impacted stakeholders engagement and decision making. To help achieve this, we would recommend that companies consider the following:
• How are management and the board adapting their stakeholder engagement strategy in light of the crisis? Were new mechanisms of engagement introduced?
• How is the board engaging with the workforce during the period of remote working?
• How is COVID-19 influencing the views/priorities of key stakeholders? How is the company gaining input and insight on these and factoring them into its response to the crisis?
• What principal decisions are being made during this time? How has the board considered the impacts of these on stakeholders, including the company’s efforts to mitigate/minimise adverse consequences? e.g. furloughing employees vs redundancies, delaying supplier payments vs reducing payments, pausing investment in certain projects vs cancelling the investment?
COVID-19 will shape ESG investing. Clearly outlining your company’s ESG approach and strategy will no longer be a ‘nice to have’, but an essential part of the engagement with investors and capital providers.
To discuss how Luminous can help you with your ESG reporting, drop me an email: Stephen.butler@luminous.co.uk