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March 9, 2022

ESG does not have to take a back seat during a crisis

In Q4 2021, GlobalData asked ESG leaders and executives to rank the themes that would impact businesses the most in 2022. Covid-19 came first, ahead of ESG, increased regulation, digital transformation, and trade disputes. In the last two years, Covid-19 has been front of mind for business, but it has spurred action on environmental, social, and governance factors. As war returns to the European continent and the world is faced with yet another existential threat, ESG might yet again take a back seat, but geopolitical challenges will also force companies to accelerate the implementation of measures in each of the ESG factors.

Covid-19 acted as a wake-up call for ESG

The pandemic forced companies around the world to change the way they operate. Many businesses brought forward digital transformation plans, and there was a boom in the adoption of technologies such as cloud computing and collaboration tools. Companies have had to adapt to the pandemic very quickly and dealing with that threat has been the most urgent item on the desks of business leaders.

Both Covid-19 and ESG represent existential threats and once the impact of Covid-19 fades, the expectation was that ESG would become top of mind for the business community. The responses to GlobalData’s ‘ESG Strategy Survey’ reinforce that view. According to 67% of respondents, the pandemic acted as a catalyst for increased focus and action on ESG issues.

Conflict in Ukraine is pulling focus

With Russia’s invasion of Ukraine, the world is faced with yet another existential crisis. However, ESG does not need to take a back seat, as the war will magnify the importance of each of the three ESG factors for companies around the world.

On the environment front, the war is adding an extra layer of urgency to energy transitions as Europe tries to reduce its dependence on Russian oil and gas. On social factors, the war highlights the importance of human rights and is forcing companies to consider their roles as actors in the communities in which they operate.

Last but no less important, the war is forcing companies to face important corporate governance questions. Tech and media companies, like Apple and Netflix, have pulled out of the Russian market. Sanctions have forced banks to do the same. Companies will need to redouble the vigilance of their entire supply chains to make sure that they comply with the embargoes being imposed on Russia.

The significance of ESG has not been forgotten

There is little doubt that businesses recognize the importance of ESG. Respondents to our survey said that ESG should be central to decision-making, including investment decisions. Moreover, an overwhelming majority (91%) thought that companies should have targets in place to meet ESG goals. Indeed, our survey shows that most companies have changed their practices, or plan to do so in the next five years to meet ESG objectives. Most also claimed that they were investing in improving their ESG performance.

In questions around awareness, our survey showed that a lack of knowledge in matters such as energy transition is no longer an impediment for ESG action. Current crises may be front of mind for businesses, but they also spur action. That happened with Covid-19, and we are likely to see it again with the geopolitical challenges of 2022.