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S&P Global — 17 Dec, 2020

Pandemic Prompts Companies to Ramp Up Forthcoming ESG Initiatives

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By S&P Global

The COVID-19 pandemic has accelerated engagement with environmental, social and governance factors among forward-thinking companies and investors, but their newfound commitments to sustainability will require tangible data on how they are delivering real world impacts, according to panelists who spoke at an S&P Global webinar on Dec. 10.

The speakers at the event, titled “Essential ESG: Incorporating ESG Scores into Corporate Strategies and Investor Communication,” featured Susan Beverly, senior director of sustainability and shared impact at the multinational healthcare company Abbott; Michael Dickstein, group sustainability director at the beverage firm Coca-Cola HBC; and Manijt Jus, managing director and global head of ESG Research & Data at S&P Global.

Since 1999, companies have used the SAM Corporate Sustainability Assessment (CSA), issued by S&P Global, to evaluate their sustainability practices and strategies. This year, there has been an 19% uptick in reported CSA evaluations amid the COVID-19 pandemic, according to Mr. Jus. However, that trend has not been seen broadly. The crisis prompted some companies to prioritize sustainability initiatives, while others that especially suffered during the pandemic needed to step back and reassess their investments as well as employee resources, Mr. Jus added.

Investors are increasingly focused on how ESG scores reflect companies’ progress in meeting sustainability targets, and the demand will require companies to report how their initiatives show tangible impacts.

“We look at ESG and sustainability, first of all, by means of risk mitigation,” Michael Dickstein said during the panel. Coca-Cola HBC, a strategic bottling company that partners with the Coca-Cola company, operates primarily in Central and Eastern Europe, Ireland, and Nigeria. The company’s operations were severely impacted by the pandemic, forcing it to shift its focus to volunteering activities such as donations to hospitals and adding capacity in manufacturing lines to produce personal protective equipment and hand sanitizer. “There is an increasing array of activities where sustainable revenues are becoming more relevant.”

Companies are increasingly aware of the intersections of social and governance risks, which can involve human capital and supply chains.

The healthcare conglomerate Abbott changed its priorities to launch several COVID-19 tests early on in the pandemic. Its tests, which included an antibody test and rapid antigen test, were granted emergency use authorization by the U.S. Food and Drug Administration and were distributed at mass scale. The transformation of Abbott’s supply chain has sparked new discussions around risks and future opportunities among investors and other stakeholders.

“In doing that, your supply chain naturally changes,” Susan Beverly, the Abbot executive, said in reference to the company’s production of COVID-19 tests. “That’s been a big discussion amongst the management of the supply chain and how we look at the supply chain in terms of risks and opportunity moving forward.”

Overall trends in CSA evaluations show that many companies did not go back to the drawing board with their sustainability strategies, nor did they come up with new material issues due to the short-term nature of the pandemic, according to S&P Global.

Climate change continues to be the top priority across industries, but the effects of the pandemic have amplified areas where companies might be falling short of ESG practices, forcing them to think about risks that have not yet materialized. Companies tend to underreport on the social aspect of ESG, according to Mr. Jus, but that is likely to change in 2021 as they integrate new practices for measuring social data.

S&P Global added several cybersecurity data and privacy questions to the CSA questionnaire this year as companies across various industries address growing cybersecurity issues. Companies have the ability to submit such confidential information under non-disclosure agreements.

The opportunity to submit confidential information can help to fuel a deeper level of understanding and further context on companies’ sustainability practices, according to Ms. Beverly, who “expect[s] more and more transparency and a push on that in the coming years.”

Policy also has the potential to significantly drive companies’ and investors’ ESG engagement in the coming years, especially across Europe.

The United Kingdom recently announced that companies will be required to report on the impacts of climate change on their businesses by 2025. Such regulations, which can take several years before being made mandatory, can have a significant impact on ESG data framework because they will define the specifications for what needs to be reported, S&P Global’s Mr. Jus said during the event.

“Those regulations are pushing reporting to new levels of granularity, and we want to make sure that we’re able to capture that,” Mr. Jus said.

The European Green Deal, which aims to make Europe carbon neutral by 2050, will require companies to report reliable and comparable ESG data. The task at hand, however, will be providing sufficient support to companies at a policy level to reach the necessary goals, according to Coca-Cola HBC’s Mr. Dickstein. “It doesn’t make sense that you just set out legislation and then you’re not helping the industry sectors that are most affected in order to make the change,” he added.