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13/05/2020

GERMANY | CSR | Corona vs. CSR: Does the Virus also Stop Sustainability?

In our newsletter “Outlook Corporate Social Responsibility 2020” at the beginning of February 2020, we presented our assessment that the new decade would be in the spotlight of sustainability. Two months later, our world has been transformed abruptly. The coronavirus is omnipresent, and the measures required to contain it are having a serious impact on society in general and on the economy in particular. At present, here and now, many people and companies feel that there are more important things to do than deal with sustainability issues. But does this mean that the issue of sustainable management is permanently off the table, the spotlight off?

Our assessment: Not at all! A diligent and forward-looking CEO will do well to keep the issue of sustainability in view during and especially after the coronavirus crisis. Maybe now is exactly the time for a mind shift. Only recently, Germany manager Joachim Löw, one of the most important representatives of German professional football which is otherwise not necessarily known for its profundity, warned, “The pace we set could no longer be beaten. […] Power, greed, profit, even better results, records were in the centre“, while environmental disasters and diseases were pushed to the margins of perception.

In our current newsletter “Corona vs. CSR: Does the Virus also Stop Sustainability?” we give a detailed overview of current developments on the topic of sustainability in times of the coronavirus and the resulting arguments for the unbroken relevance of sustainable management. We have summarised the most important points briefly and concisely below:

1. Preliminary considerations: The coronavirus crisis and the efforts to achieve greater sustainability in the economy are not irreconcilable. On the contrary, it reveals clear how important it is to avoid or mitigate, where possible, future crises that could be triggered or favoured by insufficiently sustainable economic activity, or at least to be as well prepared as possible for them. Keywords are: cost efficiency of climate protection measures, resilience to the effects of climate change, transparency in the supply chain, interdependence of economy and society. It is one of the most important material contractual obligations of every manager to secure the long-term existence of the company. Especially when it comes to strategy and investment decisions, it is essential to make these decisions on the basis of adequate information. Sustainability aspects cannot simply be ignored.

2. European Green Deal, EU Climate Law and New Marshall Plan: The EU Commission has already made it quite clear that, even in view of the coronavirus crisis, it wants to continue to adhere to the European Green Deal and the goal of climate neutrality by 2050. To this end, the EU presented, among other things, the draft of an EU climate law at the beginning of March. In addition, European Commission President Ursula von der Leyen announced that the funds mobilised to combat the coronavirus crisis would have to be invested “wisely and sustainably”. The aim is to “build a more modern, sustainable and resilient Europe“.

3. Dealing with sustainability risks: It is not apparent that existing and future sustainability risks will change or be reduced fundamentally as a result of the coronavirus crisis. In accordance with applicable legal regulations, the managements of financial companies and companies in the real economy must (also) deal appropriately with sustainability risks, and of course with the opportunities as well. The German banking supervisory authority BaFin’s leaflet on dealing with sustainability risks is therefore still valid.

4. Special: Climate Change Litigation: In addition to the actual risks associated with advancing climate change, companies are also exposed to liability risks resulting from an increasing number of climate-related lawsuits worldwide (so-called climate change litigation). Judgments in pending lawsuits as well as potential future plaintiffs will not be stopped by the coronavirus crisis. The risks related thereto will therefore continue to exist.

5. Institutional Investors: It is not to be expected that investors – and here especially large institutional investors – will pay less attention to sustainability aspects in the future. Larry Fink’s recent statement that BlackRock will stick to his sustainability-oriented investment approach, and even that long-term thinking has never been more critical than it is today, is a prominent example. Companies and investors with a strong sense of purpose and a long-term approach would be better able to navigate this crisis and its aftermath.

6. Stakeholder Capitalism: Klaus Schwab, founder of the World Economic Forum, shares Larry Fink’s view. Following the discussion on new Stakeholder Capitalism at this year’s World Economic Forum, Klaus Schwab calls for support for stakeholder companies in particular in the current crisis, as they represent the economic model They represent the economic model “that will make us survive today, but thrive again tomorrow“.

7. Rights and duties of the management: The legal situation – that the management must also take sustainability aspects into account appropriately when making decisions (see above) – remains unchanged. The discussion on sustainable corporate governance which is already in full swing, also and especially at EU level, is unlikely to be interrupted.

8. NAP-Monitoring and Supply Chain Law: The already lively discussion about a possible supply chain law which was further fuelled by the unsatisfactory results of the first round of monitoring, will certainly not ease up under the impression of the economic consequences of the coronavirus crisis. Gerd Müller, Minister of Economic Cooperation and Development, recently declared that he nevertheless remains committed to the goal of sustainable global supply chains. There are also strong intentions at EU level for regulations in this respect.

9. Conclusion Corona vs. CSR: As we currently see it, the coronavirus crisis will not stop sustainability; on the contrary, it may even promote it. It is already predictable that the coronavirus crisis will lead to a change in behaviour in many respects. Similarly, a reassessment of many assumptions about the global economy does indeed seem appropriate. The corona crisis shows the vulnerability of a globalised world at its most sensitive spots. This may raise awareness of the fact that other future crises – above all those resulting from progressive climate change – could have very similar consequences and that it is therefore important to prevent or mitigate them wherever possible. It also highlights the importance of strengthening the resilience of companies. This also includes creating more transparency, especially at the critical points in the supply chain, and diversifying risks. The coronavirus crisis also reveals how closely economy and society are linked nationally and globally. Ultimately, global challenges can only be tackled efficiently if all players work together. States, business and society would be well advised to make their respective contributions to this end in order to achieve sustainable growth for all in line with the United Nations’ 2030 Agenda and prevent the dangers that would otherwise threaten. This however requires, among other things, precisely the economic transformation that the EU Commission is aiming for in its European Green Deal.

 

Dr André Depping
Dr Matthias Etzel
Dr Daniel Walden

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