The COVID-19 pandemic has risked stalling the commitment CEOs have shown to environment, social and governance (ESG) matters in the past decade, according to leading global law firm Baker McKenzie. The Firm’s new report - Sustainable Success: Exploring environmental, social and governance priorities for Industrials through COVID-19 and beyond, uncovers practical ESG considerations for recovery and beyond with insight from industry leaders and its experts.
The report looks at the following:
- Resilience: Foresight in a time of crisis. How can Industrial companies navigate immediate ESG priorities and risks in relation to COVID-19 decision-making?
- Recovery: Leveraging ESG. Will sustainable organizations be best positioned to overcome performance challenges arising from COVID-19?
- Renewal: Building new sustainable revenue streams. What opportunities exist for Industrials to build new sustainable revenue streams for the long-term?
Commenting as the report is launched, Nikolaus Reinhuber, Global Chair of Baker McKenzie’s Industrials, Manufacturing and Transportation (IMT) Group said, "Covid-19 will pass. Arguably, climate change will be a bigger challenge for the global community in the long term. However, Covid-19 is having an effect on how businesses will look after ESG issues. All indicators show that those businesses with a more active focus on ESG will do better. It is becoming a question of competitive advantage. This change will be driven by intrinsic motivation of business leaders and by extrinsic factors, in particular clear demands from institutional investors, the next generation of talent, as well as from customers, and by a changing regulatory framework."
According to the report, leaders in the IMT sector have made –– and continue to make –– fast decisions in response to COVID-19 disruption. From filling supplier gaps and renegotiating contracts to furloughing employees and shoring up cash flow, the pressure to make key moves quickly and balance often competing factors is high. “This in turn may have increased ESG-related compliance risk, and compliance investigations and enforcement are expected to rise in the coming months as governments, stakeholders and the media scrutinize corporate responses to the pandemic,” according to Anahita Thoms, Partner, and Global Sustainability Lead of the IMT group at Baker McKenzie.”
The Firm explains that corporate and government initiatives for pursuing economic recovery after the COVID-19 pandemic provide an opportunity to progress ESG goals, given the significant upheaval and corresponding imperative to rethink business models, energy usage, and resource inputs and to future-proof against the next global crisis.
In the report, experts also contemplate that access to capital will be increasingly dependent on ESG criteria, as investors and financial institutions move beyond strategies where funding was directed with minimal regard for ESG goals and impacts. Nowhere is this more critical than in Africa, where COVID-19 threatens to disrupt the growth story of the region.
“Access to capital will be critical to corporate recovery and to ensuring key industrial and infrastructure projects in Africa can continue –– how to mobilize capital from local savings pools, shore up development finance from the IFC, IMF and World Bank, and direct green bonds are now important questions for leaders in the region. In the fight for capital, embracing sustainability can be a source of competitive advantage. Funding in some areas is contingent on meeting certain global ESG standards and other investors have followed this lead –– requiring documented, planned policies and processes in relation to ESG. The market for green and sustainable bonds is also likely to expand in the coming years. In an effort to drive investment and make it easier to list and trade sustainability-linked instruments,” said Wildu du Plessis, Banking & Finance Partner based in Baker McKenzie’s Johannesburg office.
Finally, Baker McKenzie explains that IMT companies will increasingly rely on digitization, AI, automation, and other transformative technologies to emerge from the Covid-19 pandemic. Companies that do not embrace technology and innovation are less likely to emerge as financially and sustainably healthy and thereby ensure long-term resilience. “New opportunities exist in drone technology, AI, supply chain digitization and more for those organizations that can access capital and unleash it to adapt. Lean, agile and efficient are the watch words of the new economic order – especially in IMT. Where sustainability can deliver these outcomes, we will see companies accelerate towards a new reality and commercial success,” added Anahita Thoms.