An investor relations perspective: Why is ESG more relevant following COVID 19?

ESG and COVID 19 in context

Following the outbreak of COVID-19, ESG practices have become more relevant to enable business sustainability and continuity. This is practically evidenced by the increase in corporates globally that are assisting governments and communities in relief efforts, with a conscious reflecting a shift from shareholder to stakeholder value. Investors are also cognisant of this, and there is a real focus now on the ‘S’ in ESG, as the social impact of Covid 19 is very real for all stakeholders including their clients.

Wells Fargo, in a report some years back already, highlighted that ESG related stocks have shown comparable returns to non-ESG related stocks since 2015, implying that doing the right thing does necessarily imply a detraction from investor returns. Current research is becoming more complex and funds focused on ESG targeted metrics are finding increasing favour with investors.

Social factors

Social factors at the forefront of the Covid 19 crisis, are the health and safety of employees as well as corporate supply chains, which are now becoming priority business imperatives. Emotional and mental wellness of employees cannot be underestimated for employees in the workplace as well as those that are increasingly working from home. Corporates have the opportunity to improve their employment credentials and create goodwill by assisting where they can, providing financial assistance to customers, manufacturing masks, gloves and medical equipment where possible and providing support to communities in which they operate in. The social aspect of ESG in the face of COVID 19 is providing an ideal opportunity for these shared value initiatives for the mutual benefit of the society in which we all work and live.

Governance factors

The board and management of a company is responsible for risk management and oversight. Corporates should be consider expanding their risks frameworks to include those risks directly related to ESG and COVID 19. Strictly adhering to policies, procedures and regulations implemented by governments, could mean the difference between operating or being closed for business. By now, most companies would have constituted a COVID 19 task force to navigate through the dynamic environment that they find themselves in. The dedicated task force should enable corporates to change and adapt to the new environment and reinforce the appropriate corporate governance practices.

Environmental factors

Climate risk is investment risk according to Blackrock. The environmental impact of operating remains relevant where corporates should still aim to achieve key performance measures of reducing their carbon footprint and utilising water and energy more efficiently among others where applicable. The opportunities presented by COVID-19 are evident in social media posts of the “earth recovering” while we work from home. Corporate goals therefore become more achievable in instances where ‘work from home’ and these practices become a permanent feature of corporate life post COVID 19.

What can I do as an investor relations professional?

Investor relations facilitates strategic communication between corporates and the investment community, particularly relevant during uncertain times. Currently, there exists a unique opportunity to be transparent in positioning your company’s response to COVID 19 and the measures and steps being taken to safeguard the company and its stakeholders and navigate the uncertainty created with COVID 19 particularly in respect to ESG. Engaging with various external stakeholders including shareholders, analysts, other investor relations professionals, sponsors, regulators and communication agencies, can provide valuable insights to ensure transparency and a fair valuation of the company. Information can then be fed back to executive management and COVID 19 task teams on a regular basis to ensure that best practices and new ideas are identified and considered. This is also an opportunity to assess internal ESG processes and procedures and improve them going forward. Always remember as an investor relations professional you form an integral part of the social conscience of any corporate and your feedback is invaluable. COVID 19 is a catalyst for you to reassess and strategically position your company’s broader ESG response.

Written by:
Anashrin Pillay
Head of Investor Relations at PPC