Should Companies Focus on Sustainability Amid COVID-19?

Should Companies Focus on Sustainability Amid COVID-19?

  • Environment-focused initiatives have moved off priority list
  • Five ways sustainability efforts can still help meet goals of companies as well as investors
January 07, 2021 | Procurement Strategy Blogs

Clean, green and sustainable -- these were the priority areas for organizations in the pre-COVID-19 days.

It was evident in rising clean energy investments and increased employee and investor engagement in environmental and social issues as part of corporate social responsibility (CSR).

The approach was paying off, at least in terms of revenue. In 2018 alone, consumer product goods marketed as “sustainable” saw a 30% increase in sales year-over-year.1

Amid the funds flowing into renewable energy projects across the world, the commercial cost of electricity generation was declining steadily. In 2018 again, the global weighted average cost of power for concentrated solar power fell 26% year-over-year, followed by 14% for bioenergy, 13% for solar photovoltaic and onshore wind and 12% for hydropower.2

Then came the pandemic. And amid the economic ravage it has wrought, the very existence of these sustainability-focused CSR efforts are under threat.

Companies Have a New Priority List

The priority list has changed as organizations struggle with preserving their cash reserves and don’t think twice before postponing any move that does not immediately improve their financial situations.

As companies revise work business strategies, in the U.S., the Environmental Protection Agency has relaxed its norms on greenhouse gas emissions and pollution levels (such as air and plastic), citing potential financial relief to companies as the primary motivation.

Meanwhile, many green energy initiatives have been put on hold with crude oil prices crashing to an averaging of $38 per barrel in 20203.

Once again, companies are relying on traditional fossil-fuel powered-transportation to meet the unprecedented demand spike for goods from e-commerce platforms by people cooped up in their homes. Dreams of an electric vehicle era has to wait.

While use of reusable and paper bags was made mandatory at many places to replace the polluting single-use plastic bags, these reusable bags are now being seen as “unsanitary” due to COVID-19 transmission fears. Single-use plastic bags are back at grocery stores.

Why it is Time to Think Long Term, Once Again

While changed corporate and consumer behavior may be helping companies preserve capital in the short term, investors across the board are still banking on long-term strategies.4

These buyers are still prefer shopping from environmental, social and corporate governance (ESG )-focused companies over others. In fact, investor-company interactions need to be sensitive and understanding while maintaining the long-term focus and discipline.5

Despite these short-term reversals due to COVID-19, popular support for environmentally-conscious initiatives is intact and growing.

Companies will be in the unique position to both benefit from and contribute to these sustainability efforts. Here is how:

1. Companies where majority of the employees are working from home can reduce subsidized travel expenses, decreasing the amount of carbon emissions from commuters.

2. Companies can also conserve cash by taking advantage of tax credits and green stimulus packages across many regions in the world.6 The world’s top 50 economies have pledged around $583 billion to boost green efforts. In the U.S., tax credits were extended to support renewable energy.7 Top companies have already pledged to work towards the U.N. Business Ambition for limiting global warming to 1.5°C above pre-industrial levels, and they have pledged to use/are using recycled plastics for their products.8

3. COVID-19 has thrust the global economy into an unpredictable state, and the subsequent recession has had a destabilizing effect on oil prices. As such, companies need to use the opportunity to prepare for the inevitable rebound by increasing their reliance on renewable energy.

4. Companies can also save money in their transportation by switching to electric vehicles, as the total cost of ownership is reduced due to low maintenance and fuel costs in the long term in addition to the various state tax credits.9

5. To weather unforeseen challenges, companies need to balance their short-term cost-saving strategies alongside the long-term financial initiatives by assessing unfavorable scenarios, such as any natural disaster, pandemic, or government scrutiny on carbon emissions.

So, the big question for companies in terms of their ecofriendly initiatives is: if not now, then when?

Sources and references:

1. https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU%20Stern%20CSB%20Sustainable%20Share%20Index%E2%84%A2%202019.pdf

2. https://www.irena.org/publications/2019/May/Renewable-power-generation-costs-in-2018

3. https://www.eia.gov/outlooks/steo/report/prices.php

4. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/major-esg-investment-funds-outperforming-s-p-500-during-covid-19-57965103

5. https://www.strategy-business.com/article/The-environmental-opportunity-created-by-COVID-19?gko=0051f

6. https://www.wsj.com/articles/governments-eye-a-green-economic-recovery-some-industries-arent-convinced-11594113028

7. https://www.eenews.net/stories/1063260671

8. https://unglobalcompact.org/take-action/events/climate-action-summit-2019/business-ambition

9.  https://www.energysage.com/electric-vehicles/costs-and-benefits-evs/ev-tax-credits/#:~:text=For%20light%2Dduty%2C%20medium%2D,amounts%20will%20decrease%20in%202020

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