July 13, 2020
Sustainability reporting during Covid-19 times

Covid-19 has made timely disclosures more important than ever. Still, longer-term strategic matters must continue. SGX RegCo, Singapore’s stock exchange, has shared the most pertinant social aspects that need to be included in sustainability reporting.

The first phase of corporate response to COVID-19 has been characterised by urgent actions taken to deal with various, immediate business disruptions. These actions include activating business continuity plans to comply with safe distancing protocol, searching alternative supply chains between lockdowns across the world, and navigating legal contracts and force majeure events.

SGX RegCo provided guidance to markets on April 22nd, in the Regulator’s Column about disclosures during Covid-19. They highlighted the importance of providing sufficient information to investors about material changes as and when developments arise, or where near-term earning prospects change.

We are entering the next phase of Covid-19, with the gradual reopening of borders and the resumption of economic activities. Going beyond simply restarting their businesses, issuers should reevaluate how they can operate safely in a new environment.

The outbreak has laid bare the importance of managing material social risks and opportunities between key stakeholder groups, including employees, customers, suppliers, and the community.

It’s possible that certain businesses no longer work, while it’s also possible that new opportunities have arisen in new ways of doing things. Coping with the pandemic has been made easier through accelerated digital transformation. Technology will, once again, enable the corporate sector, as well as the broader economy, to move into the next phase of recovery.

With regard to this, a responsible board of directors needs to conduct a fundamental review of a company’s business and business strategy against the operating environment. It requires boards to look into the future and consider various, possible scenarios.

When will things return to normal, if ever? If they don’t, which scenarios are plausable to occur, and what would be the company’s response? There are no clear-cut answers, but a board is uniquely placed to guide a company through, and beyond, the current crisis.

Similarly, in the next phase, investors and other stakeholders need to be kept abrest of what is happening. Issuers have called for a shift to a risk-based, quarterly reporting regime to give them more latitude when considering long-term strategic matters. We recognise that boards need time to think through these challenges and to formulate a response.

The annual reporting apparatus, in the form of business, financial, corporate governance and sustainability reports, is a convenient medium and an opportunity for boards to demonstrate their considered analysis and lay out their plans and strategies to push a company forward.

If it’s the case that a board has already considered these aspects prior to an annual reporting period, then they should update stakeholders accordingly in their quarterly updates or half-year financial report.

Reporting on social factors is particularly important during Covid-19

The impact of Covid-19 on the people-element of business is of particular interest.  The outbreak has laid bare the importance of managing material social risks and opportunities among key stakeholder groups, such as employees, customers, suppliers, as well as the wider community.

A company’s response, in relation to these matters, should be included in, and can even form the basis of, social aspects of sustainability reporting. 

Here are some examples of social aspects that companies probably want to consider and describe in their reports.

Employees

A company’s response to governmental calls to institute safe distancing measures and embrace ‘work from home arrangements to the furthest extent possible.

The health and safety of employees, which before now has been perceived as more of a concern for heavy industry, has become a critical consideration for any type of business. Efforts here can include providing face masks and hand sanitisers for employees, as well as facilitating telecommuting. The economic downturn brought on by the crisis has also threatened livelihoods, and job security is of key concern for many employees.

Training and reskilling staff to meet new challenges and leveraging training grants should also have been considered as an appropriate alternative to redundancies. Businesses tread a fine line between competing priorities, and should lay out their plans when they have been set in stone. They also need to keep everyone within their organisation connected virtually, in form and in spirit.

Customers

Covid-19 also impacts customers downstream, who might not be able to meet contractual obligations due to physical restrictions or financial difficulties. Issuers should describe any extension of assistance given to customers where possible, from not insisting on strict legal rights to providing free or discounted goods or services. Companies should understand that when they support their customers through the bad times, those customers will stick around when the good times come.

Suppliers

Many businesses found out the hard way that maintaining visibility on associated risks in their supply chain is essential. With lockdowns in place across most countries, they have been forced to seek alternative suppliers. Issuers who have conducted a supplier assessment exercise as part of their sustainability report should appreciate the importance of dealing with both foreseen and unforeseen circumstances.

They would do well to describe how they have considered their supply chain, and assess the impact potential of lockdowns.

Community

Many talk about not ‘wasting’ the crisis, making calls to use it as a catalyst for change. Some businesses have sought to renew their social licence and enhance their legitimacy in local communities by repurposing their facilities to produce essential necessities such as face masks, hand sanitisers, or anything else crisis-related that is in short supply.

Others have organised furloughed staff to help towards national efforts to combat Covid-19 -- for example, as safe distancing ambassadors or contact tracers. Issuers showing solidarity with people helps generate goodwill and other reputational benefits for the future.

Conclusion

Companies have taken, and will need to continue to take, a plethora of different actions to deal with the Covid-19 crisis. The World Economic Forum (WEF), in its annual Global Risk Report, has identified infectious diseases as a major global risk in terms of their debilitating impact. Still, the WEF also said: “Outbreaks of infectious disease may be inevitable, but the economic damage they cause is not.”

Businesses can expect to be constantly challenged about how they intend to sustain themselves in the face of the risks posed by disease and other such situations. We would expect issuers to set out their plans and strategies to recover from Covid-19 in annual or sustainability reports for the relevant period, with a special emphasis placed on social aspects in their sustainability reports. Stakeholders can then benefit from a holistic understanding of the company’s response.

Source: Eco Business