Editor’s Note: As ESG governance and disclosure enters a new, more intense phase, we’ll be hosting a one-day update session focused on the most critical issues for public company board members May 5, 2022. Join Us >
At the outset of the Covid-19 pandemic, there was a wide divergence of opinion on the potential impact of the pandemic on corporate sustainability programs. For example, approximately 30% of sustainability executives thought the pandemic would increase their firm’s emphasis on sustainability, while only 10% of legal, governance and investor relations executives thought so. In fact, the pandemic—along with contemporaneous social unrest and increased pressure from stakeholders—generally accelerated corporate sustainability efforts. While the Ukraine invasion is a vastly different crisis from the pandemic, and while each company’s response will reflect its unique circumstances, our experience with the pandemic and other crises can offer insights on what the Ukraine invasion may mean for corporate sustainability efforts.
First, expect the focus of sustainability efforts to shift.
We expect a shift, but not a decrease, in focus on sustainability programs. Companies will be taking (yet another) fresh look at their supply chains, with an emphasis on both resilience and responsibility. Some European firms may supplement their energy needs with a greater share of fossil-fuels, likely slowing progress related to climate commitments in the near term. But as the crisis eases, we are likely to see an accelerated transition to renewable energy, which is less vulnerable to geopolitical risks. And, while not on the same scale as the pandemic, we expect a strong focus on people—first and foremost ensuring the health and safety of employees, customers, and the communities in the region affected by the conflict.
Second, ensure there is C-suite alignment on the impact.
CEOs around the globe ranked sustainability seventh (out of 10) as an internal issue to focus on in 2022, but the sense of urgency in the C-suite ranges from human capital leaders, who rank it third to CFOs, who rank it tenth. Given the impact that the Ukraine invasion will have on economic issues from supply chain resilience to energy security, it is important to ensure there is a consensus among the C-suite on which issues truly matter. It is especially critical that CFOs and finance teams—who often control the planning and capital allocation processes at a company—are fully engaged with their sustainability colleagues.
Third, recognize that the elements of a robust sustainability program can help during a crisis.
The hallmarks of a strong sustainability program include a defined corporate purpose and a clear understanding of which issues truly matter to a company’s and its stakeholders’ long-term welfare, which can provide guardrails for decision-making during a time of heightened uncertainty. By their very nature, effective sustainability programs also require a high degree of horizontal collaboration across an organization, an openness to ideas that come from unconventional sources, and an ability to “look around the corner”—all of which can speed the response and spur innovation during a time of crisis.
To be sure, a CEO’s first thought when a geopolitical crisis hits is not likely to be “what does this mean for our sustainability efforts?” But it’s important to ask that question nonetheless because of the very public priority that companies have placed on sustainability efforts and because of the customers, employees and investors who may also be asking that question. In addition, CEOs should consider how the company’s sustainability program can inform the firm’s response to a geopolitical crisis. Addressing these questions now can help to highlight key challenges and opportunities, maintain (if not improve) C-suite alignment, and continue to foster a culture that serves the company well in times of crisis to come.