Don’t forget ESG amid Covid-19, it will be more relevant than ever in the post-lockdown world

As the world begins to emerge from lockdown into the “new normal”, we consider what impact Covid-19 has had on ESG considerations for companies and investors.


Though devastating in other respects, the business shut down to contain Covid-19 may have positive environmental side-effects, including the largest ever annual fall in global CO2 emissions and improved air quality and biodiversity in cities. These effects will, however, be temporary unless the enforced restrictions on our behaviour are a catalyst for permanent changes in work patterns and modern life, especially as regards to avoidable travel and what we consume. Who hasn’t used Zoom, WebEx, Microsoft Teams or one of the other online meeting resources instead of a physical meeting or business trip in the last few months? We are also seeing the start of online conferences and a resurgence of home baking. ESG-conscious investors will be mindful of a post-lockdown rebound to polluting habits in the name of economic recovery.

Businesses involved in mining, oil and gas and power generation using these sources of energy will never be seen as angels by the environmental lobby. All they can really do is operate in the most environmentally sustainable fashion possible whilst they seek to pivot towards clean energy sources. The recent oil-price collapse brought on by the Covid-19 crisis could accelerate this transition. Equally, oil and gas majors may look to make up for lost time when restrictions are lifted through increased extraction and supply. Either way, they should expect continued investor scrutiny around climate-related transition risks in a “net-zero” policy context.

Other businesses can make an active choice on the type of power and resource they source. All businesses can reduce unnecessary travel and waste and can expect to be judged on their performance by asset managers, consumers and commentators. Airlines face a major challenge but it is unlikely that vapour trails will disappear entirely and this is another sector which could see demand rebound after lockdown, unless business and consumer habits change more permanently.

Virtual AGM’s will provide novel conditions for challenging company boards on these issues. Companies looking to postpone their AGMs rather than move them online should be aware of the reputational risks and will need to be sure that constitutional documents permit this. Notably, Legal & General Investment Management have urged companies to hold virtual meetings where possible, rather than postpone. In any event, companies will need to make sure new procedures do not infringe shareholder rights and communications with shareholders should be timely and transparent.

In short, boards of companies can expect to be challenged to learn from the Covid-19 crisis and not just slip back into inefficient or polluting habits. Activist investors, in particular, will be looking to make sure long-term stewardship does not suffer, a concern voiced by the UN PRI initiative.


The UK Government has taken unprecedented steps to support companies, their employees and self-employed workers so that businesses can survive throughout the lockdown. Companies were under considerable scrutiny before Covid-19 to ensure more stakeholders benefit from the success of the business, rather just shareholders and senior executives who are often seen as having over generous employment and benefit packages.

Companies which take advantage of the Government schemes can expect heightened scrutiny from the media in the same way as the banks did after the global financial crisis in 2008. Denmark has banned companies registered in jurisdictions perceived as tax havens from accessing financial aid during the pandemic. Companies must also promise not to pay dividends or make share buy-backs in 2020 or 2021. Poland has followed suit. The UK Government might not have gone so far, but companies that survive the crisis by furloughing staff or benefitting from other Government schemes but later lay off staff and return large profits will not go unnoticed. That said, the UK’s support for employees is generous compared to jurisdictions like the US, where unemployment benefits are the only recourse for many, and this may to some extent reflect well on UK businesses.

The tax angle is important. Post-virus scrutiny may push tax transparency and compliance up the governance agenda. Scrutiny of companies’ domestic taxes base is only likely to increase as governmental budgets come under strain. In the meantime, short-term tax changes aimed at stimulating recovery will proliferate. It remains to be seen whether the virus will trigger longer-term reappraisals of tax policy, such as a suspension of OECD-driven global tax reform or a shift towards taxes on consumption and property that are perceived as less suppressive of growth. The interaction with the “social” side of ESG is clearer than ever.

The social element of ESG also needs to be considered by senior management as they design their incentive arrangements and pay structures as many listed companies will be doing this year as they renew their three year remuneration plans. Virus-induced slowdown will of course be relevant to target and timing decisions for future bonuses and share awards. Increasing salaries of the lowest paid and taking other measures which will impact the profit margin will increasingly be seen as mark of an ethical business as will greater employee participation in share incentive arrangements.

Finally, allowing staff to volunteer to help the NHS or to making other contributions to the UK’s fight against Covid-19 will be seen as normal rather than exceptional.


Governance is the mechanism by which companies get judged on their adherence to expected standards of behaviour. Some governance is mandatory (e.g. prescribed health and safety or environmental standards) but other governance operates under the comply or explain model, e.g. FRC corporate governance code. Does anyone doubt that the bar will get higher? Also, whilst much of the voluntary corporate governance was reserved to listed businesses, regulation is increasingly applicable to large privately owned businesses.

Companies are already being encouraged to increase the participation of workers in the board room. Most companies have elected to do this by the use of a director responsible for garnering views of employees rather than having workers on boards. We expect this trend to continue but more than lip service must be paid to good corporate governance. A company which has powerful support from its workforce is more likely to have a positive image with customers and suppliers.

Expect to see more B-Corps and similar kite marks denoting good ethical companies.