Now is the time to emerge as a corporate ‘saint’ not ‘sinner’

In the pre-coronavirus world, Kimberley Lewis spent much of her working life trying to lift executives’ sights from day-to-day pressures to the ways they could become better, more responsible corporate citizens.

But now, with many of the world’s cities in lockdown and unemployment skyrocketing, many businesses are struggling to survive — let alone focus on long-term sustainability goals.

Ms Lewis, director of engagement at Federated Hermes, one of the world’s largest money-market fund managers, has had to adapt. “I’m conscious of not wanting to seem tone-deaf,” she says. “Some things will inevitably be put on the back seat a bit and lose a bit of momentum.”

The global pandemic has forced an abrupt rethink of a responsible capitalism agenda that had started the year on a high, when the teenage climate change activist Greta Thunberg starred at a Davos conference whose idealistic slogan was “stakeholders for a cohesive and sustainable world”.

Advocates of tackling what has become known in the corporate world as ESG — environmental, social and governance issues — contend that the pandemic may throw such matters further into the spotlight. It could mean that attention is drawn not so much to the specifics of businesses’ often disparate and sometimes siloed initiatives to make operations more socially responsible. Instead, it could focus more scrutiny on the bigger, more overarching, question of whether executives do the right thing.

A company’s actions in a crisis are “the epitome of determining what its business purpose is”, Ms Lewis says. “Companies can decide to react ethically and put society more broadly before potential short-term profits.”

Her own conversations with executives will centre on how they treat their staff and suppliers, and in some cases how effectively they retool operations to help health services and governments respond to coronavirus, she says.

Nominations for which companies deserve the status of “saints and sinners” because of their response to the pandemic are already starting to emerge. The luxury giant LVMH won plaudits for retooling a perfume factory in France at lightning pace to produce hand sanitiser.

The Marriott hotel group has been hit hard by the outbreak. Its chief executive Arne Sorenson drew praise from the World Economic Forum’s founder Klaus Schwab in March for announcing that he and his chairman would take no salary in 2020.

Meanwhile some of the biggest US airlines drew the ire of Mr Schwab for having spent 96 per cent of their free cash flow during the past 10 years on buying back shares, leaving them in greater need of government help.

BlackRock, the world’s biggest asset manager, started 2020 with a push to position itself as a leader in sustainable investing and has doubled down on this in the wake of the crisis. In mid-March, the company pledged to punish the directors of companies that failed to meet its expectations on issues from executive pay to managing environmental risk, even as many grappled with the pandemic’s consequences.

“I believe long-term thinking has never been more critical than it is today,” BlackRock’s chief executive Larry Fink said in a letter to shareholders. “Companies and investors with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.”

In practice, that includes holding companies to account for “how they prioritise in a time of crisis,” including how they treat their employees and what they are doing for the businesses in their supply chains, their customers and their local communities, says Amra Balic, head of BlackRock’s investment stewardship team for Europe, the Middle East and Africa.

“If you asked anyone who was in the sustainability or ESG space a year or two years ago, they would tell you that somehow the ‘s’ [for ‘social’] has not been given much visibility,” she says. “Covid-19 has changed that substantially, and very, very quickly.”

Employees’ wellbeing “is clearly at this time something they [corporations] need to focus on,” she adds.

With the annual general meeting season under way — at least for companies whose AGMs will be held online rather than be rescheduled — the issues will be thrown into sharp relief.

While “we’re just as passionate about moving the needle on, say, gender diversity and aligning executive compensation,” Ms Lewis says, voting against board members over those issues could be difficult in some cases, if they are otherwise doing a good job of steering a company through some of its toughest times.

“We need to be a constructive voice with companies at this time [and] focus on how they’re navigating the crisis,” she says. That means there are “some difficult calls to make.”