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The Insider

Despite COVID-19 Pandemic, Momentum Builds For Corporate Sustainability

Even during the recession spurred by the COVID-19 pandemic, voluntary corporate sustainability measures are continuing to gain popularity as firms that adopt them prove more resilient to the downturn than their competitors.

New studies of that resiliency are fueling calls for legislators to build environmental goals like renewable energy and climate resilience into an eventual stimulus bill, as well as fresh investments in companies that make pollution cuts and other sustainable practices a priority.

Inside EPA’s Environment Next is covering new developments in private environmental initiatives that continue to grow even without regulatory mandates, and the possibility for market factors to help drive fresh government action on clean energy, climate and more.

Environment Next is a free service to our subscribers featuring wide-ranging looks at coming developments for environmental protection and policy, including interviews, in-depth reporting and profiles of key figures, companies and other groups that are reshaping regulation and private governance on air, water, waste and climate change. The features offer a new way of reporting about the shift from command-and-control regulation to innovative, market-based measures and other efforts, including voluntary programs and government action outside EPA’s purview.

ESG Successes During Pandemic Might Signal Start Of Long-Term Trend
Environmental, social and governance (ESG) sustainability experts say the relatively strong showing by sustainable companies during the COVID-19 pandemic and recession could be the start of a long-term rise for ESG, which in turn could benefit progress on climate change, renewable energy, and other environmental issues.

During a recent webcast hosted by the consulting firm Freshfields Bruckhaus Deringer, speakers from the public sector, banking industry and sustainability firms said that while it is too soon to make firm predictions on how the current downturn will end, the success of sustainable companies across multiple sectors could provide a foundation for private environmental work to continue or even accelerate.

That would be a sharp contrast with past recessions, where the result was that environmental issues like climate change were forced “to take a seat for up to 10 years,” said Kelly Fisher, the head of American corporate sustainability operations at the banking giant HSBC. But she and other speakers on the webcast said the correlation between high ESG ratings and resilience to the pandemic is becoming undeniable after sustainable firms’ earnings and stock prices were found to outperform their competitors’ during the downturn.

And moderator Gillian Tett, the editorial board chair and U.S. editor-at-large for the Financial Times, said those factors could help spark the “green recovery” focused on clean energy and climate-resilient infrastructure that many international groups, as well as congressional Democrats, are seeking.

While economic-recovery legislation is unlikely to pass until after the November elections, the corporate trend toward voluntary ESG measures continues to grow, including a push for firms to be more transparent about their sustainability programs:

Corporations Increasingly Adopt ESG Goals, Performance Disclosures
Corporations are increasingly presenting their environmental, social, and governance (ESG) strategies and performance on earnings calls with investors along with other disclosures that replace traditional short-term quarterly thinking, according to recent research by sustainability experts.

Experts say mounting evidence suggests that corporate performance disclosure is shifting toward sharing information about ESG and long-term goals during “investor days.” At these events, CEOs and other senior officials update investors and others on the company’s direction, and on “earnings calls” to discuss its financial results.

The COVID-19 crisis that has disrupted supply chains and business models globally “has caused much attention to focus on key ESG practices, from stakeholder relations to human capital management,” according to a recent paper from the New York University (NYU) Stern School of Business Center for Sustainable Business and the global CEO Investor Forum. “Many expect issuers and institutional investors to increase their focus on ESG issues in both corporate practice and disclosure as we cautiously exit the COVID-19 crisis."

For instance, the fashion industry -- a major waste generator and customer for chemicals manufacturers -- is under sharp pressure to adopt new sustainability measures, though observers foresee a host of challenges in actually doing so:

Fashion Sector Faces Unclear Path To Sustainability, Waste Reduction
The fashion industry faces growing pressure to embrace sustainability and reduce its waste output as a result of both the COVID-19 pandemic and a push for companies to lessen their environmental footprints, observers say, but the sector faces an unclear path for identifying ways to make fashion production more sustainable.

“The fashion industry devours one fourth of all chemicals produced worldwide . . . and textiles are the country’s fastest-growing waste stream,” said author Dana Thomas during a recent Environmental Law Institute panel discussion, “Innovative Solutions to Fast Fashion Challenges.”

Speakers on the panel said that given the growing market trends toward sustainability across sectors, with many firms making waste cuts, emissions reductions and other environmental improvements part of their business model, fashion firms will likely be forced to shrink their environmental footprint to compete.

But how they will do so, given the costs of using more sustainable materials and inherent challenges in recycling clothing, remains unclear. Achieving a zero-waste circular economy will require firms to “internalize” the costs of their pollution, but also to accept that after reaching that goal “our clothing could cost a lot more,” said Kaveri Marathe, founder and CEO of the clothing-recycling startup Textiles.

Companies using advanced computing to green their operations are also facing calls for greater transparency, as experts say initiatives that rely on artificial intelligence can only work when firms make all relevant data available:

AI Experts Say Data Transparency Key For Digital Sustainability Tools
Efforts to use artificial intelligence (AI) and other digital approaches to solve major environmental problems will require complete transparency about the data and models used to ensure trust in the results and increasing use of the cutting-edge tools, according to AI experts.

Steven Brumby, senior director for data visualization at the National Geographic Society, said on a recent webinar that the scientific community believes ensuring data are valid and trustworthy as presented will require reproducible science.

He said that to show that no “mystery steps” were taken to reach conclusions, presenters will have to show the “training data” used to develop models, publish all model parameters, show how code produced results, and take other steps to answer all questions about how results were produced, including making data publicly available on Resource Watch, a dynamic online platform that says it “provides trusted and timely data for a sustainable future,” and other platforms.

Even if developers are able to provide such transparency, some skeptics will still disbelieve the results if the findings are “not flattering to themselves,” Brumby added.