The chair of the European Confederation of Directors Associations (ECODA) has urged boards to embrace ESG in the fightback against coronavirus and the economic chaos which will likely follow the pandemic.
In an open letter, chair Jan Wesseldijk explained it is the responsibility of companies to contribute to the survival of the economy, noting that “every crisis creates a moment of truth for an organization.”
The chair’s letter comes as Covid-19 has killed thousands across Europe, shutting down many business sectors and causing severe stock market volatility (the Euro Stoxx 50 index fell 38% between 19 February and 18 March). Several nations are now in lockdown with many businesses facing considerable financial uncertainty.
In response, the EU Commission and European Central Bank have introduced several countermeasures to hinder the spread of the virus and support the economy during this crisis. This has included a 30-day travel ban on any non-EU nationals from entering the bloc from the Commission and a €750bn stimulus program from the ECB.
However, Wesseldijk said more can be done by companies in their response and how they support business continuity, pressing for ESG to be championed with the “full dedication of board members and management”.
In his letter, he wrote “Board members have to make bold decisions today and to rely on their collective wisdom to navigate these unprecedented times
“As the question of survival has replaced the question of sustainability for now, the concept of ESG goals takes on its full meaning.”
As a result, Wesseldijk says this ‘full meaning’ of ESG means management boards have to review how they are operating in the light of this crisis and how resources and operations can be adjusted to support continuity.
In the letter, boards are recommended to ensure they are making the necessary decisions regarding employee safety and how supply chain operations and relations with customers need to be adapted. Exploring new forms of ‘remote interaction’ is a big part of this, with companies now encouraged to explore how they can remain operational while satisfying social distancing measures.
Overall board members are also being urged to adapt their governance, and the organisation of their physical general assembly, by counting on the help of national governments to adapt legislative texts.
Even though the chair acknowledged that immediate corporate survival takes priority over long-term sustainability goals, he also stressed that transparency should not suffer as a result and that communication must be sustained with investors and relevant shareholders during this crisis.
In particular, Wesseldijk was keen to stress the fiscal responsibility boards have not only to their shareholders and employees but also to the wider economy.
He wrote: “As part of the financial crisis, boards have to review the 2020 impact on financial information, investment and liquidity, remuneration policy, specific risks like I.T. continuity.
“Additionally, boards must prevent the current crisis from creating extra cascading risks like cybersecurity in an exceptional and massive period of working online from home.”
In recent years, ESG has become more highly prioritised by management boards due to greater pressure from shareholders and investors alike. This has been partly driven by a greater focus on the environment and climate change by investors, leading to ESG-oriented funds (and the companies championing these ethics) to receive greater attention from investors.
At the same time, this has also resulted in more disclosure and reporting around ESG, with management boards making greater efforts to quantify, monitor and report the various ESG impacts their companies have (which is also being increasingly mirrored by asset allocators in their reporting).Last Updated: 2 April 2020