December 18, 2020
For all of its disruption, 2020 has a silver lining: environmental, social and corporate governance (ESG) principles have become central to the long-term success of companies. Crisis after crisis was thrown at them this year — pandemic, economic downturn, supply chain disintegration, civil unrest, unyielding natural disasters — each acting as a wake-up call for substantive change.
The old way of doing business is out; prioritizing stakeholder safety, security and sustainability are in. Here's what won in 2020:
Employee health and well-being
Corporate social responsibility morphed into broader sustainability concerns, with a new focus on social issues in light of current events. Companies big and small stepped up over and over again to support employee health and well-being in 2020. According to Sara Mahaffy, U.S. equity strategist at RBC, some 48% of S&P 500 companies discussed how to help employees during the pandemic. Some companies moved boldly by shuttering brick-and-mortar operations before shelter-at-home mandates took place, while others pivoted, quickly redesigning workplaces and transitioning operations.
Many companies also went to extraordinary lengths to sustain both company and employee, from senior management pay cuts to stave off companywide layoffs to sourcing the best protective face coverings for employees.
Yes, it was often bumpy as business leaders figured out what worked and what did not; for many, however, it was never a question of "either-or" but “yes, and” when it came to decisive action. Their actions made the difference in employee health and well-being in 2020.
Diversity, equity and inclusion
Diversity, equity and inclusion discussions took center stage in the aftermath of police actions against Black Americans surfaced. The Black Lives Matter movement thrust what some social activists viewed as primarily symbolic gestures into the C-suite as people worldwide protested ongoing racism and societal inequality. According to numerous news reports, Black and Latino Americans have been disproportionately affected by COVID-19, often lacking viable work from home options and access to quality healthcare. Compounding the crisis, the documented recording of George Floyd's death in Minneapolis, Minn., resulted in global protests calling for urgent change.
Companies pledged to do better, rapidly shifting to address employee concerns by hosting listening sessions and renewing diversity and inclusion commitments. Improvements included more robust measurement plans, supplier diversity programs and hiring practices. Building an inclusive workplace is a long-term commitment; companies leading with action will benefit long term by incorporating diversity and inclusion into their business operations.
Decarbonization efforts continued as 9% of S&P 500 companies set new sustainability initiatives or recommitted to previously announced carbon reduction goals. Yes, the pandemic disrupted global economies, but companies understood that climate change wasn't going away because of COVID-19 or its business risks.
In its July 21, 2020, press release, Apple publicly committed to being 100% carbon neutral across its business, supply chain and products by 2030, while a Unilever February 2020 announcement said that the company would source only renewable or recycled carbon for its cleaning and laundry products by 2030. By maintaining decarbonization efforts, the world may reach the climate-neutral goals outlined in the Paris Climate Agreement by 2050.
Sustainable equity funds
ESG proved to be worthy investments as sustainable equity funds hit new highs in 2020. According to Morningstar, 70% of sustainable equity funds ranked in the top half of their fund category, while 44% ranked in their category's best quartile.
ESG investments also gained traction among state-owned funds. In 2019, the sovereign wealth funds of Norway and Saudi Arabia announced plans to divest from oil to build more sustainability into their portfolios. According to an October Financial Times report, Norway's sovereign wealth fund sold off investments with links to coal use and production, human rights infractions and corrupt activities.
Looking forward to 2021
Gains made in ESG, health and well-being, diversity, equity and inclusion will continue as investor and consumer demands for sustainable operations grow. Prioritizing stakeholders' safety, security and sustainability will be critical for companies looking to build upon 2020's momentum.
Discover how UL helps businesses bring sustainability into alignment with their strategies, making it easier for them to track, measure and share sustainable performance results with stakeholders. Visit UL Sustainability and Environment for more information.