The sudden and severe spread of COVID-19 worldwide has prompted lockdowns that now affect half of the world’s population and 90% of Americans. Drastic measures to limit the spread of the virus have roiled financial markets and sent businesses in nearly every sector scrambling to respond to operational disruptions and steep declines in consumer demand. Most countries, including the US, are still in the early days of containing the outbreak, and it largely remains uncertain what public health and economic recoveries will look like in practice. However, trends have already begun to emerge in businesses’ initial responses to the ESG risks posed by COVID-19, and it is likely that the pandemic will fundamentally change how companies behave in the future.
Worker Health and Safety
The outbreak of COVID-19 has rendered worker health and safety considerations – a subset of issues which have historically been limited to more labor-intensive industries – relevant to all roles, including white collar positions. While pathogenic contamination controls have been historically important to some industries, they will certainly become a more widespread, high-priority concern during and after this pandemic. OSHA recently released guidelines on preparing workplaces for COVID-19 that are a good starting point for companies looking to protect workers from the risk of infection. Companies should make strides to extend clean workplace and personal hygiene protocols, including more frequent cleanings of communal or high-touch surfaces, adjusting workflow to provide for employee social distancing, ensuring employees have access to adequate PPE (e.g. gloves, masks), and maintaining decontamination procedures in the event of confirmed cases of COVID-19. Companies will additionally need to take steps to proactively communicate safety protocol changes to employees and monitor compliance by actively encouraging sick employees to stay home. Failure to implement sufficient pathogen contamination controls can lead to severe reputational scrutiny and backlash from workers. For instance, the onset of the outbreak has prompted strikes from workers at Instacart, Whole Foods, and Amazon over concerns about workplace safety. Workers allege that the companies do not provide basic hygienic support, including time and supplies to wash hands or disinfect surfaces between shifts, which has prompted calls from consumers to boycott their services.
Social and Labor Conditions
The COVID-19 pandemic has heightened public scrutiny of labor conditions in the US, particularly in regard to “essential” employees who are not permitted/able to work from home. This group includes workers in healthcare, transportation, and distribution, as well as hourly employees, such as grocery store and food service workers. Currently, millions of workers are not being provided paid sick leave or hazard pay, which is crucial to ensure they are protected and the services that they provide can continue. To improve the situation, the Department of Labor recently announced new measures under the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act. Independent from this initiative, companies should also consider expanding their paid sick leave policies to better accommodate employees during crises and personal emergencies to improve morale, which in turn will help limit unwanted turnover. If furloughs or layoffs are necessary, companies should strive to provide adequate separation benefits and other resources, such as aiding in job searches. For employees that have the ability to work from home, telecommuting presents potential obstacles in maintaining company culture and supporting employees in their professional development. Companies should focus on providing open lines of communication, for example, by providing open office hours via Zoom or Skype, which will enable employees to still get virtual facetime with their superiors. Additionally, companies should adjust communication procedures in order to better monitor employee engagement and sentiment. As extended out-of-office work continues into the foreseeable future, initiatives like bi-weekly pulse surveys and (at-least) weekly manager check-ins will help management teams to proactively track changes to employee sentiment under these atypical working conditions.
Due to the risk of COVID-19 contagion, consumers have become increasingly aware of the lack of paid sick leave afforded to restaurant employees, and the risk it poses to the integrity of their food. While the risk of transmission from food or food packaging is fairly low, it is possible for a sick food service employee to inadvertently contaminate food packaging (e.g. to-go containers) and transmit a virus to a customer if they then touch their eyes, nose, or mouth. Restaurant staff should take additional precautions to prevent accidental contamination during food preparation, including sanitizing prep stations and, most importantly, washing hands. Delivery companies also face heightened scrutiny related to possible pathogenic contamination of food than ever before, magnifying the risk of reputational harm associated with food safety incidents. As more restaurants enter the food delivery market to minimize losses from government bans on public gatherings, food safety controls will become increasingly important. The incorporation of delivery into traditional restaurant services creates additional risks; for example, transportation from restaurant to consumer may require certain temperature controls, especially for food intended for delayed consumption (e.g. refrigerating and reheating food), and delivery personnel may need to leverage PPE such as masks and gloves. Moreover, restaurants that successfully implement delivery options may continue to provide these services post-quarantine, making strong food safety controls key to long-term success.
Supply Chain Management
When the COVID-19 outbreak began in China and much of the country suspended manufacturing operations, it caused upheaval in global supply chains, as companies scrambled to secure the inputs necessary to sustain production. As Harvard Business Review reports, companies that previously invested in mapping out their supply chain networks before the pandemic have been better prepared for business disruptions. Though resource-intensive, mapping out suppliers and sub-tier suppliers – centrally documenting the origin of every material input involved in producing final goods and services – is a strong risk mitigation strategy for companies, because it provides an abundance of organized, analyzable supplier data. Expect a greater number of companies to invest in these mapping projects in the aftermath of the COVID-19 pandemic, as well as identifying alternative supplier options to create redundancies. Doing so will also yield the positive side effect of increasing ESG oversight of supply chains, allowing companies to more easily track countries of origins of raw materials (such as conflict minerals) as well as the environmental and labor practices of sub-tier suppliers. Additionally, for the foreseeable future, companies should consider surveying suppliers to understand how they have treated their employees in the face of COVID-19. By looking for positive supply chain social practices such as providing PPE, implementing social distancing measures, and supporting sick workers, companies can ensure they are working with ethical suppliers, both to limit reputational risk and preempt future operational disruptions.
Data Privacy and Security
Increased web traffic due to unprecedented numbers of telecommuters and other quarantined internet-users may heighten data privacy and information security risks for companies, especially in regard to protecting increased volumes of personal information pursuant to standards set by regulations such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA). Companies subject to these regulations may be at a higher risk of investigation or penalties related to non-compliance with data privacy requirements. For example, technology companies benefitting from trends in remote work or video/audio conferencing are already experiencing increased scrutiny of their data use, including data sales, as occurred with Zoom in March 2020. More generally, all companies must implement further controls to combat information security risks arising from remote work, including enforcing clean desk policies at home, requiring the use of VPNs, and protecting confidential information when conducting teleconferences in the vicinity of roommates and family members. The relevance of these issues may not diminish significantly with time, as the trends in remote work are unlikely to be totally reversed following the COVID-19 outbreak.
Diversity and Equal Employment Opportunity
As a result of forced closures or decreased profit margins associated with COVID-19, many companies may need to conduct headcount rightsizing. Reductions in force present substantive diversity and equal opportunity risks, creating the potential for actual or perceived discrimination in terms of the demographics of the employees eliminated. In order to mitigate the risk of litigation or public scrutiny, it is crucial that employers maintain formal processes to ensure decisions are not influenced by unconscious bias or disproportionately impact protected classes. In addition, the spread of COVID-19 has inflamed racial bias and discriminatory behavior against individuals of Asian descent. It may be prudent in these times to conduct ad-hoc workplace civility and bystander trainings and engage managers to help prevent issues of racism and xenophobia in the workforce, given the likelihood that anti-Asian sentiments will remain heightened after the pandemic. While the federal stimulus package approved by the Senate removed the diversity requirements that were included in the version that passed the House, future stimulus efforts may include such provisions. Companies should be aware of this future possibility to ensure they are able to meet all requirements.
While the coronavirus pandemic may have helped to reduce emissions momentarily, it may have also slowed down progress towards environmentally friendly policies. Recently, the Trump administration announced a freeze on enforcement of environmental regulations. The EPA will not fine companies for violating certain requirements on limiting pollution for the indefinite future. Given Trump’s past efforts to weaken environmental regulations across the private sector, it is unclear whether his administration will reverse these rollbacks. Furthermore, despite attempts to tie a $60 billion bailout for airlines to requirements for airlines to cut their planet-warming emissions in half by 2050, the $2 trillion coronavirus relief package passed without requiring any action to stem the climate crisis. In Europe, airlines have pushed back against environmental taxes on air travel, citing financial hardships as a result of reduced travel due to the coronavirus. While environmental compliance requirements may be more lax in the immediate future, companies may still face public scrutiny by consumers and reputational blowback if they take advantage of this period to abuse environmental regulations.
The temporary slowdown of commerce and closing of public areas has already had remarkable effects on the climate including the air pollution in Los Angeles and cleaner canal waters and return of wildlife in Venice. While this may induce some pressure on governments and businesses to reduce emissions, the positive impacts of COVID-19 on climate change issues may be short-lived. The economic downturn caused by the virus is likely to push climate change to the political back burner, as voters’ primary concerns become financial. Already, the UN’s COP26 summit, scheduled for November 2020, has been postponed. It is likely that governmental efforts to address climate change stall as governments instead focus on economic recovery. If this occurs, it will be incumbent on the private sector to self-regulate and set their own more ambitious goals for emissions reductions. Such self-regulation will leave companies well-positioned to accommodate future climate change-related legislation. While the severe slowdown of economic activity has provided some respite from pollution, it is not a sustainable long-term solution, and will not meaningfully halt climate change trends.
Ethics and Compliance
In order to support small businesses, the Small Business Administration (SBA) is providing debt relief and small bridge loans for businesses impacted by the coronavirus pandemic – recipients will be subject to standard ethical requirements. Additionally, the COVID-19 crisis led to a wide variety of unethical business practices that may seriously damage companies’ reputations. There has been a sharp uptick in consumer complaints relating to price-gouging everywhere from Michigan to Texas. And within the healthcare field, medical workers have reported being threatened with termination for raising concerns around lack of adequate PPE. While are strict media guidelines in place for healthcare workers to protect patient privacy, healthcare workers argue that the public has a right to know what is happening in these facilities, and companies may face backlash for potentially unethical silencing of these types of employee concerns.
The COVID-19 outbreak has placed enormous strain on healthcare resources and disrupted business operations globally. However, businesses that cultivate strong ESG practices can develop a greater degree of resiliency to operational challenges posed by COVID-19. Moreover, as the ongoing crisis prompts changes to public policy and fundamentally alters corporate practices (e.g. increasingly greater degrees of remote work), companies that proactively bolster their ESG capacities will be well-adapted for future business environments. The path to recovery is uncertain at this time and depends on a variety of critical epidemiological and economic factors, but it is clear that ESG issues will only become more material for companies in the foreseeable future, as many of the difficulties brought on by COVID-19 are here to stay.