Heavy G Duties

Heavy G Duties

This is the fourth and the last article in the series of IdealRatings coverage about COVID-19 in ESG.

“All of us want to survive the Coronavirus Pandemic. Most of us will, and after we do, we will look back either with pride or regret on how we dealt with things during the crisis.” Donald T. Iannone

Mr. Iannone highlighted the core of this crisis; whatever will happen will happen, but the consequences are what will matter the most. Companies that will remain in business after this emergency state will be held accountable for their present actions and response and their future plans. Accordingly, governance key performance indicators might witness new additions or shifts in priorities.

Given the nature of the current status, crisis and risk management are considered the starting point. Companies should set various dynamic plans that minimize the impact of the virus on the continuity of their businesses. A two-way communication is recommended to take place with all stakeholders, so as to consider all feedback received from any party to ensure full alignment. This requires proper board oversight combined with full collaboration from the executive team. Plans should take into consideration new governmental regulations and/or priorities. It should be expected that after this ordeal companies would have learned it the hard way, but crisis management should take a top priority and accordingly a proper risk management plan would be set, regularly monitored and updated.

On the financial level, full and transparent disclosure will be expected on the current status, forecasts based on the set scenarios, and impact on all financial elements, especially liabilities which might affect other stakeholders. All of this should be done in a timely manner. It is also expected that more suspensions of dividend payouts payments and stock repurchases will take place. Moreover, executives and directors’ compensations will face a sound decrease. Accordingly, with proper capital allocation and precise forecasts companies can start restructuring their business.

Furthermore, with the deviation from the normal market pace and the previously expected changes on the E, S and G levels, the following increases could occur; number of local suppliers, corruption cases, competition, cutting costs, etc., and every one of these comes with its potential risks. Therefore, companies’ internal regulations and code of ethics should be revisited and all employees and suppliers should receive a thorough training.

With the above requirements and the rising appetite for ESG market, given its proven resilience amidst the crisis, the market is expected to observe an increase in proxy voting and in the quality and quantity of disclosure.

Written by Mahinaz El-Aasser; ESG Product Manager at IdealRatings, Inc. She can be contacted at melaasser@idealrtaings.com