The fallout from Covid-19 has underlined society’s expectation of businesses to combine commercial priorities with wider social considerations.
While some companies have risen to the occasion – taking bold steps to protect their people and supply chains, for example – others have missed the mark and faced public criticism.
As businesses around the world entered a lockdown, some received praise for protecting vulnerable parts of their supply chain. Others, however, were criticised for forcing their people and suppliers to go without salaries, payment and – in some extreme cases – accommodation. Interestingly, it looks as if it has taken a global pandemic for the ‘S’ in Environment Social Governance (ESG sustainability criteria) to take centre stage.
Global companies including Unilever, H&M and L’Oréal prioritised payments to SME suppliers as lockdown hit – acknowledging that without their support, others in the chain would go unpaid and people would be made redundant. Yet others, large and small, seemed to adopt a bunker mentality that included cancelling orders and forcing premature redundancies on vulnerable suppliers.
Combining legal and moral considerations
A business, understandably, has to look after itself and try to maintain profitability during adverse economic circumstances, but it should not inevitably come at the expense of having negative repercussions on others in the ecosystem. Cancelling orders by invoking a force majeure clause may be legal but it exposes a short-term vision that may have later repercussions on commercial relationships and reputation.
The decisions a business makes in pressured situations gives us a glimpse of its culture and the role it seeks to play in society. The Covid-19 fallout exposed many companies interest in its bottom line regardless of the impact it would have on people inside and outside the organisation. In Section 172 of the UK Companies House Act, firms have to write about how they engage with their suppliers and their employees. The aim is to encourage them to think more long-term, more sustainably, about these relationships and the Covid-19 era will provide a litmus test for how seriously leaders take those statements and apply them in the real world.
A new sustainable chapter
For that reason, Covid-19 could, in fact, open the next chapter for sustainability: businesses that have walked the talk could find themselves in an enviable position in two years’ time. It’s plausible to imagine mergers occurring in 2022 (and beyond) when the buyer asks how the company acted during Covid-19 in order to understand the status of its wider commercial relationships and internal culture.
Similarly, sustainability reports – and transparency - are likely to undergo transformation post-Covid. We have reached a turning point where society knows companies are adept at talking about what they do well while avoiding communicating on what still needs to be improved. In other words, they stick to reporting safe ‘input metrics’ rather than the more challenging ‘outputs’ and ‘outcomes.’ For instance, they may include details on courses for responsible procurement, but they don’t talk about whether they know if their suppliers are paying a living wage. Outputs and outcomes need to guide future sustainability reports if they – and the companies that publish them – are to be treated as balanced and transparent.
Practical sustainable steps forward
Leaders worried or wondering about how they play a more positive societal role should start by focusing on their impacts on people. Practically speaking, they should convene a diverse group from different parts of the business (sales, operations, HR, legal, finance and others) and ask: where do the greatest risks to people lie?
The most severe risks to people are likely also the greatest risks to their business. This line of questioning will help leaders prioritise and it will ‘trickle down’ into shaping a culture that benefits teams and the bottom line alike. When you have the priorities, you can develop the action plans, get to the heart of the issues, assess what you have (and improve on them) and then monitor results. Then start again by integrating any improvement recommendations.
Reconsidering the role of business
Covid-19 has forced businesses around the world to make tough, sometimes uncomfortable decisions. While some have received public acclaim for their actions, others have been criticised for failing to appreciate the wider impact they have on society. As lockdowns end and people slowly return to work, what businesses did during Covid-19 will not be quickly forgotten.
The EU, meanwhile, is planning to introduce mandatory human rights due diligence, with UK companies wishing to trade with EU companies more than likely having to comply. For sustainability reporting, it could mean more rigorous standards that demand more meaningful communications on the good and the bad. As for businesses worried about their reputational hangovers, now could be an opportune time to reconsider the societal and sustainable role they wish to play in the world. Those that do so are likely to be the ones to enjoy long term profitability.
Publication date: 07/07/2020