Environmental, social and governance issues come under the microscope amid a global pandemic
In the chaos and uncertainty of the COVID-19 pandemic, corporations in Canada and around the world have pivoted to meet the urgent shortterm needs of front-line workers and coronavirus patients, embracing a pragmatic new social purpose.
Brewers and distillers make hand sanitizer in facilities designed for beer, whiskey and gin. Vehicle manufacturers have used some of their smaller plants to make respirators, ventilators and face shields. Big-box retailers have set up drive-thru testing centres in their parking lots.
“There’s a lot of social innovation underway right now,” said Coro Strandberg, a corporate responsibility expert and faculty member of The Directors College from the Degroote School of Business at Mcmaster University in Ontario.
“If it’s an agile organization, if the culture is one of social responsibility or social purpose … then management has a context in which they can quickly pivot and respond to emerging societal needs.”
COVID-19 has created a renewed focus on environment, social and governance (ESG) issues in corporate boardrooms as directors scramble to navigate the current crisis while adjusting their longterm strategic visions with both shareholders and stakeholders in mind.
“In the post- COVID environment, the company’s relationship with how it treated stakeholders (during the pandemic) will be evaluated and judged,” said Strandberg, who teaches ESG in the Chartered Directors Program at The Directors College.
“It is the board’s fiduciary responsibility to think long-term, so they’ll be looking at their stakeholders from (both) a risk and opportunity lens.”
COVID-19 has created a raft of new ESG issues for boards to contend with, from adjusting supply chains and sharpened CEO succession planning to monitoring employee productivity and mental health as they work from home due to physical distancing requirements.
“Boards, frankly, have been ill-prepared for the kind of thing that we are experiencing now,” said Bob Willard, a former IBM senior leader who also teaches ESG at The Directors College. “But this is not the last time we’re going to have one of these things.
“They really need to figure out how the company is going to position itself to be more resilient in the face of more crises, more emergencies — more very significant systemic shocks — that will impact not only them, but all of their stakeholders.”
The Directors College, Canada’s first university- accredited directors education program, is adapting its standard-setting ESG curriculum with those factors in mind. In-person classes are shifting to online webinars during the pandemic, and lessons from COVID-19 are being incorporated to help directors proactively manage and mitigate risk during future disasters.
With a focus on bridging the gap between knowledge and practice — between “knowing and doing” — the ESG module at The Directors College is part of an internationally-known program that prides itself on being flexible, diverse, immersive, innovative, comprehensive and actionable.
“The environmental and social stuff is now coming home to roost,” said willard. “And it’s a legitimate function of boards to include deliberations around these issues in all of its committees’ mandates.”
ESG is a broad area of study that covers everything from environmental sustainability — including navigating the effects of climate change — to social responsibility and good governance.
Increasingly, both shareholders and stakeholders are demanding that corporations adopt sustainable practices, not only for ethical reasons but also because they make good business sense.
Pre- COVID-19, the most pressing ESG issue was the environment. The Task Force on Climate-related Financial Disclosures ( TCFD), founded by Michael Bloomberg and championed by former Bank of Canada Governor Mark Carney, was created to improve transparency through voluntary climate- related financial risk disclosures that companies can use to educate investors, lenders, insurers, and other stakeholders.
“Basically, they were trying to cover their assets in the face of climate change,” says Willard. “And what they’re thinking is that businesses are not telling providers of capital what they need to know in order to determine whether or not the companies might be risky investments.”
Climate change remains a pressing ESG issue and is an ongoing concern that boards will need to address, in addition to more robust pandemic planning.
This is part of what’s called the new ESG Imperative, and Willard and Strandberg cover it extensively in the ESG module of The Directors College, a program that has become a crucial tool in the education of directors who must remain agile, nimble and flexible in a time of rapid and unpredictable change.
“I think that post- COVID, expectations will be greater for business to play a stronger role in society,” said Strandberg.
“Stakeholders, government regulators — everyone will be judging businesses for how they perform during the pandemic. So I think it’s imperative for boards to keep that in their sights, and I think they will.”
As directors adapt to increasingly chaotic and uncertain times, innovation in the boardroom will become more crucial. Digital technologies are changing the way businesses and their boards operate and communicate.
Companies that embrace innovation as a guiding principle and adapt to disruptive technologies will thrive; others will likely be left behind. The Directors College has designed a special module in Innovation Governance to help boards weather the digital storms they will inevitably encounter.
“( After the pandemic), companies will become more interested in the resilience and strength and capacity of businesses in their ecosystem or their business constellation,” said Strandberg.
“It might prompt some companies to start to invest in or co-innovate with their business partners in their value chain wherever there are some weak links.
“And in so doing — in strengthening their supply chain — that creates social benefits for the employees of those suppliers.”
For more information and to sign up for the Chartered Director Program at The Directors College, visit thedirectorscollege.com, or attend a complimentary webinar as part of the Mcmaster Collaboratorium, a virtual series that examines how governance and leadership are evolving in business and healthcare at https://executive. degroote.mcmaster.ca/home/online-learning/.