ESG can be a very effective way to evaluate your virus response. Many see ESG as a way to drive social change, but the savvy investor knows ESG information is a great way to identify sources of risk and opportunity. Before moving forward let’s see how investors use ESG information.

ESG information is a set of material non-financial data points centered around Environmental, Social and Governance (ESG) themes. How ESG information is used depends entirely on the user’s objective. There are four broad ESG categories: integration, screening, thematic, and impact investing. Of the four, ESG integration is best suited to help managers evaluate their portfolios as well as their own business risk.

ESG integration uses ESG issues which can financially affect a business. Using ESG issues alongside traditional financial analysis is how managers can identify sources of risk.

Evaluating your own response is no different than how you would evaluate an investment. Outlined below are several ESG issues which play a critical role in the effectiveness of your response. So, let’s see how it’s done.

Social (Social Capital)

Social capital is a main driver of an enterprise’s goodwill and needs to be protected. During times of great uncertainty clients require assurance that your business will go on as usual. If they consider you a source of risk instead of a  bastion of safety – you are failing them. Metaphorically be like JPMorgan – not Bear Stearns. 

Clients feel comfort when they are provided with relevant, consistent, and timely information. For investors timely also means an immediate response. If you were ever stuck in an airport you know how it feels not being informed. This is where messaging comes into play. Your website tells your topline story, shows investors you’re in control of the situation, and most importantly informs them of changes in lines of communications and processes. It’s also very important your employees share this same story. You can’t have staff giving mixed messages or client communications unexpectedly interrupted during a time of crisis. Poorly managed communications can destroy confidence in the most resilient business continuity plan.   

ESG Issues for an Investment Manager

Social (Social Capital)

  • Client Relations
  • Client Privacy
  • Product Quality
  • Data Security

Social (Human Capital)

  • Employee Health and Safety
  • Employee Recruitment, Development & Retention

Governance

  • Business Resilience
  • Business Continuity

Since remote working arrangements are the new norm, you need to assure clients that procedures are in place to keep information confidential even when the physical workspace is outside the control environment. While children are being home schooled, QC procedures are another important element to reevaluate. In good times an error is a forgivable mistake but today it can be viewed as something much worse.

Social (Human Capital)

Employees are the backbone of any firm and keeping them healthy, happy and engaged is critical. This is where all the work on DR pays off. Employees need to understand expectations, accommodations and changes in workflow. They also need to understand plan “B” if there are further business disruptions. Daily and weekly staff and firm level meetings are a great way to maintain communications and adapt processes to a very fluid situation. Regular contact with staff can help maintain calm and continuity throughout the organization, but just be careful not to overdo it.

Firm’s that keep their employees calm and working at a high level also find this will keep clients calm and confident in the services delivered. A post crisis byproduct of a well-executed DR plan will be staff having greater faith in management which in turn helps retention, moral and may even make you the employer of choice for new recruits.

Governance

Business resilience is the ability to adapt quickly to changes in the external environment with minimal performance impact. Business continuity planning is an important element in a resilient business plan. Fortunately, most firms addressed business continuity in countless operational due diligent reviews. But most plans only addressed traditional foreseen disruptions, today firms need to consider unforeseen or underappreciated events. What happens if the entire executive management team gets sick or worse? Outside vendors are another source of worry. You or your administrator may outsource work to India who just went dark, so what do I do? Simpler questions like payroll, cashflow, and healthcare also need to be considered. Given the unending nature of this crisis you also must realize you aren’t in a DR situation anymore. DR is your new primary platform, so the question becomes what is your new DR plan?

Governance creates the architecture behind a resilient business continuity plan. Strong governance breeds confidence in your firm which goes a long way to soothe the nerves of clients and employees alike. It also may help you sleep better at night. 

For those of you who like old movies I recommend Executive Suite (1954)  https://archive.org/details/ExecutiveSuite1954 which highlights poor corporate governance alongside a 1950s attitude. Hard to believe this is how we did business in 1954.

Grading Your Response

Consider asking yourself the below questions which you should think of as being part of a test graded by your clients and staff. If you pass you will be well perceived at the conclusion of this crisis.

Social (Social Capital)

    • How well am I keeping clients informed?
    • How comfortable are clients with my firms new operating environment?
    • Do clients see any degradation in work product or communications?
    • Do clients feel safe?

Social (Human Capital)

    • How comfortable are employees with the new operating environment?
    • Are employees staying positive with their new work life?
    • Are employees confident in their own work and the work of others?

Governance

    • How well is the management team adopting procedures to the crisis? Are we organized in our approach or is it one big fire drill? 
    • What is keeping me awake at night? The market or my operations?

Treat this crisis as your shining moment to succeed where others fail.

For more information on this topic or in using ESG information in the investment process contact ESGA at joe.holman@esgadmin.com.