In times of crisis, our resilience is put to the test. Our world narrows, and we tend to become more internally-focused and less engaged in what is going on beyond. The same goes for the business world - with widespread uncertainty, and acute impact on operations, many businesses are narrowing their focus to their core activities. In this climate, there is a temptation to cut anything perceived as an add-on or 'extra'. Externalities like pollution, poverty, and community can be considered fair game by those businesses that haven't fully integrated sustainability into their operations. The actions taken (or not taken) during a crisis can tell us a lot about a business' approach to sustainability; what is baked-in, and where there might be missing ingredients.
The Crisis Pressure Cooker
Right now, everyone is (rightly) concerned about the pandemic - its health implications for us and our loved ones, and the economic impacts of business mostly shutting down and people having to sit tight. Strategy, or thoughts about long-term direction are taking a back seat. And it is easy to understand why - many businesses are fighting for their survival in the face of huge uncertainty. We have to acknowledge that we are currently in a highly-pressured situation.
Those risks may be top priority for now, but the risks in not engaging on longer-term social and environmental issues that are material to your business are not going away any time soon. For those who have managed to integrate sustainability into their way of working, the crisis is in fact an opportunity to deliver on strategy, show leadership, and support the community. On the flip-side, stakeholder expectations are now higher - and they will be watching very closely to see if the communications and commitments made by businesses pre-crisis are carried through into credible actions now and during the recovery. The pressure-cooker atmosphere we are in is also highlighting gaps in strategy not otherwise noticed during normal operations. Those gaps are appearing mostly on the social side of sustainability, as we discussed in our previous article.
During 'more normal' times we are all so busy being busy, and it can be difficult to create space to think about business strategy. In this respect the lockdown period is also a rare opportunity to take stock and consider what the core purpose of your business is. Is it only to make money, or also to benefit the community, society, or the planet? For those who are at an earlier stage on the journey, the crisis is a chance to check if your sustainability strategy is balanced and reflects what you are for as a business. By observing what others within your industry and beyond are saying and doing at this time, you can also build knowledge on what an integrated 'baked-in' approach to sustainability looks like.
(Inter)Actions Speak Louder Than Words
Strategy does not exist in isolation from a business' activities - at least not effective strategy. The value of strategy is it helps to guide and inform actions, thereby putting the business on the path to achieve its long-term goals. The sustainability actions taken by a business should align with its sustainability strategy, whether it be during normal or exceptional times, otherwise you'll head off track. While times of crisis (being unexpected) will often challenge your strategy, the long-term goals should still provide a 'North Star' to orient to, and you can adjust along the way.
In times of crisis, more than ever, businesses are being judged based on what they are doing on sustainability rather than the direction they say that they plan to go. The focus is on the impacts of actions taken, and superficial efforts are quickly recognised as such. In this context, the absence of action also gets noticed, with knock-on effects for business reputation.
'Actions express priorities' - Mohandas Gandhi
The crisis has highlighted both action and inaction by business on the social side of sustainability. Here are a few areas where the pressure of the pandemic has highlighted material issues; where some business with baked-in strategies are showing leadership, while others have struggled:
Supporting Workers In Need
With whole industries put on-hold and facing an uncertain future, what businesses do to support their staff at this time really matters. For those businesses in a stable financial position, offering financial support to staff is an investment that gets remembered and repaid in future years. Those that have delivered impact in this space have gone beyond regulatory requirements by doing things like keeping staff on at full pay, offering finance options, and access to insurance.
However, not all businesses have shown leadership in supporting their workers. Some were very slow to respond to the human health risk, and advice from governments to implement social distancing, use of personal protection equipment (PPE). These businesses risk damaging their reputation, and relationship with staff. A notable example is in the meat processing industry in the USA. There, the slow response taken to protect staff from Covid-19 exposure led to more than 11,000 Covid-19 cases across the three biggest companies, and massive ongoing impacts in the supply chain.
For those businesses with a history of social and labour challenges, the pandemic is heightening existing concerns that workers are being treated fairly and provided with a safe working environment. Amazon has committed to investing its second quarter profits into pandemic-related efforts and has deployed over 100 million masks to staff, however investors and workers continue to demand greater transparency on worker safety. In the initial days of the pandemic in New Zealand, workers at Newell Brands-owned plastic container business Sistema walked out due to concerns around Personal Protective Equipment (PPE) and social distancing in the workplace.
Corporate Tax Avoidance
Multinational businesses with complex tax arrangements have also been exposed during the crisis. Some countries have limited their financial aid packages to businesses registered domestically, or excluding those that make extensive use of recognised tax havens. In addition, the Danish approach has also linked business acceptance of aid to a promise that the business will not pay dividends or conduct share buy-backs in 2020 or 2021. The clear message here is that stakeholders view ethical and responsible businesses as being those that pay corporate tax where they conduct their activities.
The 'gig economy' has grown enormously in recent years, with businesses eager to tap into a more flexible labour market, and many workers eager to adopt a more flexible approach to work. However, there are longstanding concerns around the structural use of 'independent contractors' in place of staff. Contracting involves a transfer of risk, less security. and can lead to worker exploitation in labour-intensive industries. Under the pressure of Covid-19, many workers in the 'gig economy' have seen their incomes disappear, and with no safety net that exists for salaried or hourly workers. Reassuringly, we are seeing signs that contractors are being included within the scope for Covid-related aid packages, but this action does little to address the underlying risks in the business model.
A business' relationship with its suppliers can be complex, but at its heart it is about trust between the two parties. Sustainability can only be built into the relationship if there is a good foundation of trust, and this takes time. A purely transactional relationship on the other hand, tends to deliver less value in the long-term, less resilience, and more risk on both sides.
The resulting economic shock from the pandemic has led businesses in some industries to drastically cut supplier orders, and even to withhold payment for orders already produced or received. In the case of the fashion industry, this type of unethical behaviour does not align with many brands' positions on sustainability. It also highlights the inherent imbalance of power in brand-supplier relationships. In the case of countries like Bangladesh, who are heavily dependent on the fashion industry, these actions have seen suppliers out of pocket up to 3 billion USD, with flow-on effects for workers. An NGO, Workers Rights Consortium is tracking brand commitments in this space, and holding them to account.
Given the initial chaos and uncertainty, no business has acted perfectly in this time, but those with sustainability baked-into their way of working have tended to be most effective at addressing the urgent needs of their stakeholders.
The examples above show that aligning business action with sustainability can be tough, especially when the business is under enormous pressure. But they also show why social topics need to be included in every business' sustainability strategy, and baked-into operations. With a balanced strategy, your business can be confident that your effort is being focused on the most important and relevant areas for your business and its stakeholders. And there will be less chance of finding gaps in times of crisis. The good news is that a baked-in approach, with better worker, supplier, and customer engagement also leads to better sustainability performance across the board.
Expectations around transparency are not going away. How you support your workers, and what goes on upstream in your business' supply chain and downstream with customers really matters. Those businesses that look inwards, and don't engage are putting their reputations at risk. If your business can show that it is helping to address a real need you can add value, build reputation and loyalty, and goodwill in the community. People are looking, and they will remember.
So its worth taking a moment to consider:
How has your business responded so far?
Has your action (or inaction) been aligned with your sustainability strategy and core business purpose - or have you reverted to an old way of thinking?
Have you spotted gaps in your strategy?
And don't let this crisis go to waste.
In the final article of the series, we'll focus on how the crisis has been impacting global supply chains, and whether they are forever changed. After the crisis response has eased, and we collectively take a breath, we may well be heading towards a simplified, more resilient, and automated 'new normal'.
We help organisations to build capability and confidence, so they can go out and deliver the ethical and responsible impact that the world needs. If you'd like to learn more about how your organisation can bake-in its approach to sustainability, get in touch with us at email@example.com