The S in ESG is not just Social – it’s about solidarity
Over the last few months, the majority of new business calls we've received at The Purpose Business have come from companies seeking to truly “sustain” their business, by putting people first like we've never seen before.
Even before coronavirus, social issues — the ‘S’ in ESG — have been largely overshadowed by environmental and governance issues. They're seen as more difficult to assess, with decisions not transparent enough because they reflect a variety of subjective factors such as local and organisational culture, industry practice, lack of common regulation. More than ever, stakeholders now want and deserve to know what has driven decisions to furlough employees, delay supplier payments and cut community donations.
Job security, workplace safety, healthcare coverage, labour and human rights have all become top priorities during CoVid. Businesses are now reckoning how to manage people - fairly and empathetically. On the upside, this gives them an opportunity to re-evaluate their social costs, making people everyone’s priority, not just HR’s. ‘S’ has moved higher up the ESG (Environmental, Social and Governance) agenda, one of the very few CoVid positives.
The S of Solidarity
Calls for greater “social solidarity” are underway and in March more than 280 investors, representing US$8.2 trillion in assets under management, called on companies to protect their workforces and communities during this crisis.
“We have already come across the first companies that are floating the idea of topping up pay packages to keep executives incentivised this year. We will be very critical of this kind of behaviour, especially where employees face hardship, or where shareholders expect far lower returns.”
- RobecoSAM
The investment company Robeco, which houses the firm RobecoSAM that specialises in ESG investing and indices, also released a statement saying, “With respect to the S in ESG, we find that solidarity is important, and that companies can have a social face.” It adds, “We have already come across the first companies that are floating the idea of topping up pay packages to keep executives incentivised this year. We will be very critical of this kind of behaviour, especially where employees face hardship, or where shareholders expect far lower returns.”
Prioritising the most vulnerable
The most vulnerable sectors of Asian societies are the hardest hit. Joblessness, retrenchments and high exposure to disease all tend to be suffered the most by workers whose labour is either contractual, with less safeguards and legal protections, or even informal. In Bangladesh, four million people employed by the apparel industry are now either at risk of losing their jobs, or in a situation of vulnerability due to loss of their steady income. According to Oxfam, in the Philippines, informal workers such as jeepney drivers and service workers are most severely burdened by the economic shocks brought about by the pandemic.
Particularly on the issue of modern slavery, human rights experts say that CoVid is already heightening enslavement risks due to job losses, with one reason being that employers will have stronger incentives and greater latitude for exploitation.
“CoVid has put a global spotlight on some of the world’s most vulnerable populations”
- Council on Foreign Relations.
There is however some reason for optimism as such risks and realities are coming to the fore more clearly than ever. “CoVid has put a global spotlight on some of the world’s most vulnerable populations,” says the independent think tank Council on Foreign Relations. “The experiences of previously ‘invisible’ labourers left behind by the global economy are gaining attention,” and this moment of crisis provides a window for the private sector to re-evaluate global supply chains.
You've heard it before - but yes, the time for change really is now
HR should no longer be solely responsible for people issues. Workplaces, whether at home, the office or in factories, have radically changed, along with the occupational risks they now pose. There is no central entity that decides how remote teams should work. Rather, managers need to take more responsibility not just of work output but of ways of working. It's reached a point where the International Labour Organisation (ILO) has said that:
“Steps can and must be taken at national and international levels to recognise CoVid as an occupational disease, ensuring that workers enjoy proper protection of their health, job and income.”
If we start with workplace policies, remote work is here to stay. Another is to update policies on sick leaves, implementing specific CoVid amendments to help employees recover, provide income support to those afflicted and quarantined and reduce workers’ exposure. Solidarity comes with the way we treat those who stand at greater risk of exposure - such as women, migrants, micro-entrepreneurs and small businesses and informal economy workers. It should extend to suppliers and business partners as these issues will all need responses that are not only inclusive and non-discriminatory, but come from a place of true solidarity.
Business must absolutely integrate labour and human rights due diligence into their business relationships and transactions. Beyond compliance with local labour laws, we need to start considering what policies apply to full-time employees and to contractual labour and be transparent about them. This comes with consistent communications, training and enforcement.
On the investment side, ESG is dovetailing well with COVID recovery plans, with the majority of sustainability and ESG-themed funds generally outperforming their benchmarks, while many ESG indices are holding up better than their broader-market counterparts. Furthermore, as investors start engaging companies to prioritise the ‘S’ in ESG, they will start to play a larger role in requiring greater transparency on issues of employee welfare, supplier engagement and overall, incentivise good ESG performance to drive change.
Putting people first has proven to be much more than just a feelgood, company culture aspect. It's now an essential part of business continuity planning. The decisions that companies make during these times will have profound implications on our social and economic systems – and most importantly, companies that take these steps toward greater social solidarity will see the benefits for years to come.