The coronavirus pandemic is magnifying the issue of ‘company culture’ like never before. As enterprises work to balance the needs of stakeholders, customers, and bottom lines during the COVID-19 crisis, they face intensified scrutiny on another front: how will they address personal strains in their workforce and in the communities where they operate?
With ESG investors now looking much more closely at the “S” in ESG, it’s more vital than ever that company due diligence incorporates meaningful insight into how businesses walk their talk when it comes to caring for their human capital.
In recent months, social media platforms, news outlets, and ESG-savvy experts have chronicled the dramatic rise in public sensitivity and enterprise responses to corporate culture and reputation management issues.
- The Wall Street Journal noted in April that corporate governance analysts now assess that perceived missteps on the ESG front “could do companies more damage than in the past.” Share buy-backs and executive pay, in particular, are increasingly sensitive issues. Real or perceived tone-deafness on the part of senior management is deemed intolerable and socially reckless in an era of widespread furloughs and wage cuts.
- Investment banks and financial services companies are spotlighting the implications of corporate behavior during the coronavirus pandemic for ESG investing. Morgan Stanley noted in April that “ESG factors will now be a key layer of diligence in evaluating an investment.” The Head of Sustainability Research at the investment bank observed that there can be lasting impact in these times when it comes to “how companies treat employees and customers . . . in a time of need.”
- UK-based ESG portfolio manager David Sheasby recently said that companies demonstrating the flexibility and adaptability to respond to social needs — such as firms repurposing factories to build ventilators or manufacture hand sanitizer — can “drive positive brand recognition among customers” and enhance employee satisfaction and engagement over time.
- Larger corporate enterprises are under notable scrutiny after many with large cash reserves have taken advantage of the Payroll Protection Program (PPP) intended to help small businesses ensure their employees are protected well beyond the pandemic. Early studies by Morgan Stanley and others cite a majority of PPP loans going to publicly traded companies and those with market capitalization of over $100 million.
A growing body of scholarship suggests that emphasizing concern for pressing social issues and meaningful steps to drive up employee satisfaction carries both near- and long-term benefits. In short, bridging the longstanding gap between unverified ESG claims and both societal and regulatory demands has never been more urgent or necessary.
Impact Investing Due Diligence That Goes Beyond the Extra Mile
Incorporating meaningful, evidence-based assessments of company culture has been woven into our approach to impact investing due diligence since we launched IntegrityRisk ImpactCheck. We recognized from the start that unearthing details about company culture demands specialized research skills, experience sleuthing through public records, and thoughtful analysis of past or current litigation. It is vital to assess company practices and publicly-stated commitments to workers’ livelihoods and community engagement, spotlighting differences between public claims and social media buzz or complaints from employees and affected communities.
Using a systematic, analytically driven, and comprehensive approach, we combine due diligence and investigative assets, data analytics tools, and extensive expertise in governance, risk and compliance. This innovative, pressure-tested approach is how we verify, validate, and authenticate investing performance on the full spectrum of key ESG elements, including how an entity treats its employees and the quality of its interaction within the communities it operates.
We invite you to reach out to learn even more about how our impact investing due diligence can help you in these times.
Amit Sharma, Founder and CEO of FinClusive, contributed to this essay.