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Environmental Social Governance (ESG)

How companies are being scrutinised for people management during COVID-19

By Emily Woodland
CFA, BA(Hon), M(SocSc) Head of Sustainable Investment Hong Kong, China

As jobs markets take their biggest hit since World War 2, millions of workers worldwide have found themselves in vulnerable and stressful situations. Despite the magnitude of this situation for employers, companies will not escape scrutiny for how they handle people management through the COVID-19 crisis.

The current COVID-19 pandemic is a stark reminder of the fragility of human health, and its inextricable connection to the functioning of society and the economy. Indeed, this crisis presents companies with a complex and challenging need to balance the needs of numerous stakeholders- shareholders, employees, customers and suppliers to name a few- across various timeframes.

Though some long-term ESG (environmental, social and governance) considerations are not top of mind right now, we believe the ‘S’ in ESG should be. Companies are being closely scrutinised for how they are treating their employees, customers and suppliers through this period1.

In this piece, we assess the social implications and considerations for companies in the current context, as millions of vulnerable workers are facing income loss, and millions of others are working in situations that threaten their health and safety.

 

Human capital management

With corporate culture being one of a company’s major intangible assets, how it opts to (mis)treat its workforce- both employees and contractors- during this period will have enduring implications for its long-term resilience. In particular, given the rise of the gig economy, the crisis has exposed the precariousness of casualised job security and existence of labour exploitation, exacerbating social inequalities23

At this moment, a careful balance must be struck between short term survival and long-term business sustainability. We believe effective human capital management during this period will ultimately foster a quicker economic recovery through long-term retention, and indeed contribute to competitive advantages45.

We are engaging with companies to ensure they are protecting their workers’ safety, security, and physical and mental wellbeing, as well as providing monetary and non-monetary support measures where economically and operationally feasible. Longer term, a likely outcome of the COVID-19 pandemic will be increasing expectations around the quality and depth of company disclosure regarding human capital management, as well as pressure to provide greater protection to the temporary/ short-term workforce or even rethink the employment model entirely.

Community and customer support
How a company opts to respond to the crisis through the pricing and supply of its goods and services will have far-reaching ramifications for its external reputation, brand and license to operate. Furthermore, the treatment of payments to suppliers will dictate the knock-on effects to the stability of the broader economy and therefore come under scrutiny.

Many companies have reacted swiftly and decisively to lend their capabilities in a variety of ways. Several have converted their production lines and pivoted into items that contribute to addressing the crisis, demonstrating the role that private industry can play in providing solutions to societal challenges. Some have provided liability relief or payment deferral to their customers, which may reap long-term goodwill and customer loyalty. Others have donated useful items, or temporarily hired workers that have been stood down from other companies.

Supply chain resilience
Another important consideration as a result of the pandemic relates to the globalised and interconnected nature of many supply chains. Disruption in key value chain components could, at worst, present an existential threat to a company’s operations. This is now particularly applicable to companies offering a socially essential product such as food or medical supplies. Many companies will need to review and perhaps even completely reconsider certain offshore supply chain arrangements and outsourcing contracts for essential products. Indeed, this may even be enforced by governments looking to ensure food security and supply chains for critical items.

In other words, there is a risk of a move away from globalisation, at least in the case of some products. This may in turn have profound long-term implications for developing countries whose economic models are reliant on the offshoring dynamic, as well as limiting the potential for asset sales to foreign buyers. Furthermore, it may heighten human rights risks in supply chains, however it is too early at this stage to predict how this may ultimately play out and is something we are monitoring closely.

In summary

The immediate need to react to short-term economic considerations, to ensure the damage from COVID-19 is not lasting, is understandable and necessary in this environment. However, people management during this period is equally pressing, since mismanagement could have a lasting impact on human life and health, reputation, security and crucial relationships.
 

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Emily Woodland, Co-Head of Sustainable Investment
  • Covid-19
  • Environmental Social Governance (ESG)
  • Opinion
  • Research
  • Sustainable Investment Insights
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors (UK) Limited, Registered Office at Companies House, 4th Floor Berkeley Square House, Berkeley Square, London W1J 6BX (no. 05524536) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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