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Freshfields Sustainability

| 9 minute read

Business as unusual - What role can business play in shaping a fair and lasting recovery?

How we recover from the crisis will shape our societies for many generations. How business responds to this challenge will define their future success and licence to operate. 

What will be the impact on people and society in a postcorona world? Opinions diverge significantly.

On the more pessimistic side we expect that the deep recession the virus has forced upon us will force governments and businesses to reduce spend, resulting in mass unemployment and the erosion of government support systems as a result of austerity programmes that will dwarf what followed the 2008 financial crisis. Austerity on steroids if you like. This could cancel out much of the economic growth we have seen in the past 20 years, with people’s income, savings and homes lost as a result. See the FT’s Martin Wolf’s slightly depressing video explaining how this could happen.

On the other side we are seeing a world that in many ways has been more united than ever and within that unity lies the opportunity to evolve beyond this into a very different and potentially better world. As EU President Ursula von der Leyen said in an inspiring speech to the European Parliament last week, The moment [has come] to be ready for that new world. To use all the power of our common spirit and the strength of our shared purpose. The starting point for this must be making our economies, societies and way of life more sustainable and resilient.

In this blog I will explore what a postcorona world might look like for people and societies.

1. Does COVID-19 impact everyone equally?

In many ways, COVID-19 is the great leveller. Regardless of our gender, race, ethnicity or socioeconomic status, most of us are stuck at home and any of us can catch the virus. Many challenges that come with lockdown don’t discriminate. Loneliness, depression, stress or anxiety are shared concerns for many, irrespective of background, income or social status. Yet in other ways the impact of the virus has affected the most vulnerable in society disproportionately.

Health impacts While everyone can become infected with the virus, recovery rates will depend on your age, underlying health and access to adequate healthcare. This means that some are suffering more than most. As I mentioned in last week’s blog on the environmental impacts, those living in areas with higher pollution – typically poorer populations - suffer disproportionately. For instance, the coronavirus is infecting and killing black people in the United States at disproportionately high rates. The mental health impact of lockdown also tends to be felt more by the poorer in society who live in smaller accommodation and don’t have easy access to green spaces.

But the most vulnerable are the billions living in developing countries, where the healthcare system is at worst non-existent and at best ill-equipped to deal with a health crisis of this scale. And isolation is not much of an option when you live in a shanty town in Nigeria or a favela in Brazil.   

Employment impacts With very few exceptions, we will all suffer from the economic consequences of COVID-19. The most fortunate among us will be financially secure or benefit from a well-functioning welfare state. Some of us are able to work from home and minimise risks but many can’t. According to recent research, only 29% of Americans are able to work from home and maintain their income, with most of these higher earners. The remaining 71% have either lost their income or are employed in essential services and putting themselves and their families at risk.

On the whole, the crisis will impact those who are already on unstable financial ground. In Europe, those who are likely to suffer the most are young workers and those without tertiary education.

This crisis has exposed a number of frailties of modern-day society. Most visible is our dependency on key workers and the fact that many of these professions have been neglected over the last few years as national budgets have been cut and cost-control has been used to drive profitability in a tough economic climate. As Sarah O’Connor wrote in the FT recently, the crisis ‘has exposed an uncomfortable truth: the people we need the most are often the ones we value the least.’

2. Characteristics of successful societies

In exploring the impact of the crisis on society, it is worth asking what the characteristics of a successful economy are from a societal perspective. In ‘An Economy That Works’ a report I wrote for the Aldersgate Group, a coalition of UK businesses, civil society organisations and elected officials, I identified three such characteristics:

  • Providing high levels of employment;
  • Ensuring equality of opportunity; and
  • Enhancing wellbeing.

These findings represented a consensus view of the coalition and was also mirrored in the conclusions of the Cambridge Institute for Sustainability Leadership’s Rewiring the Economy Programme.

Ensuring these characteristics are in place and at the centre of policy-making creates a virtuous circle where the economy benefits because societal needs are met, and vice-versa. For instance, in their seminal research summarised in ‘The Spirit Level’, British academics Kate Pickett and Richard Wilkinson show that more equal societies perform better than less equal ones, irrespective of GDP per capita.

What does any of this have to do with COVID-19 you may ask? Simply put, the virus itself, our response to it and the long-term economic fall-out are undermining our ability to deliver on these three characteristics of a healthy society. Many of us are losing our jobs, our overall wellbeing is threatened, both as a result of confinement and the long-term consequences of the crisis. And as outlined above, the crisis has also exposed the inherent inequalities between those of us who are likely to be protected from the virus and its consequences and those who aren’t so fortunate.

A recent BSR article put it in simple terms: “The COVID-19 crisis makes one thing abundantly clear: the social contract between government, business, employees, and people is not working as it should.”

3. Trends of a postcorona world

The first challenge is trying to understand what the future holds in store. This is no easy job. When Foreign Policy magazine recently asked 12 leading thinkers ‘How the World Will Look After the Coronavirus Pandemic’, it got 12 very different answers. But a few trends are worth highlighting from a sustainability perspective:

From global to local: COVID-19 is likely to result in the localisation of supply-chains as governments seek to protect their economies from future vulnerabilities, reduce their dependencies on complex global supply-chains and increase their capacity to cope with extended economic isolation. French President Macron said as much in a recent interview as he argued for bringing certain industries back to Europe: “it was clear that this kind of globalisation was reaching the end of its cycle, it was undermining democracy.”  This will particularly apply to service-based economies and economies with historical trade deficits – e.g. developed economies - as imports are reduced and replaced with locally produced goods. And while local supply-chains may increase labour costs and prices, there will be other benefits such as an increase in local jobs and tax revenues.On the other hand, as production becomes more localised in the developed world, many developing economies that rely on exports to keep their economies going are likely to suffer. Their economies will shrink, they will struggle to provide income for their people and they won’t be able to pay off their debts, which could wipe-out years of development. As a result, there are growing calls for debt relief.

Loss of privacy: Tackling the virus requires relinquishing many personal freedoms. The freedom to work, to roam, to congregate have all been taken from us in order protect public health. But at some point these freedoms will return, yet a greater level of government oversight into personal health is likely to remain. Will governments have a licence to track individuals who have contracted the virus? Will people be routinely tested for different viruses to reduce their spread? Will individuals arriving from abroad have to undergo a health test? Will migrants be denied entry because they come from a country that has had a viral health crisis? Getting the balance right between managing public health and protecting personal freedoms will be one of the many challenges our political leaders will have to face.

Human rights progress at risk: There is a genuine risk that the pandemic can result in increased xenophobia and fear of the outsider. Viktor Orbán’s opportunistic power grab in Hungary, aligned with his anti-immigration stance brings back memories of the late 1930’s.Companies will need to ensure, now more than ever, that as we rebuild following the crisis and its economic fall-out, respect for human rights doesn’t get lost along the way. Cutting corners to save costs in times of recession can endanger the lives of workers in global supply-chains.

Acceleration of automation: The replacement of people with machines started with the industrial revolution and has continued ever since. With the advent of the IT revolution and advances in AI, the last few years have seen a strong trend towards making jobs redundant that were once core to most economies, such as factory line workers, supermarket checkout clerks and many administrative roles forcing many to reconsider their chosen career paths. The fallout from COVID-19 may accelerate this trend as people use their time in lockdown to plan for the future, especially if they are working in professions that are declining.

Increase in wages: However, there are some indications that all is not lost on the employment front. Firstly, the realisation of the critical role key workers play in every economy is likely to result in an increase in real wages for these key workers. This is also supported by historical data: According to a paper by the Federal Reserve Bank of San Francisco looking at past European pandemics, these tend to result in long-term drop in return on assets and an increase in real wages. The latter is partly due to labour scarcity following a pandemic and a revaluation of traditionally low-paid essential jobs.

A global community: For the first time in human existence the human race is unified against a common threat and physical separation has paradoxically brought many of us together, both within and across borders. Global Citizen’s One World: Together at Home concert has brought global stars of the entertainment industry into our living rooms while paying tribute to care workers. The UK government’s call for 250,000 NHS (National Health Service) volunteers to support the NHS has seen over 750,000 people offer their time, while stories abound of citizens and companies offering time and goods for free to support the most vulnerable. This empathy with our fellow humans may be a one-off brought about by the crisis, or it may become embedded as people realise how helping others improved our well-being. The Economist reported last week on research which shows that kindness towards others actually makes us feel better and reduces inflammation.

4. What role can business play?

The business and investment communities will be victims of the economic fall-out from COVID-19, that is beyond doubt. But they can also play a critical role in shaping the type of society that will evolve from the crisis. Here’s how:

Rewarding and protecting workers: A recent Morgan Stanley report also argues that the visibility of inequalities as a result of COVID-19 will result in pressure from policy makers and investors to force companies to increase pay and provide greater security of income and benefits including healthcare. Indeed, companies' responses during the crisis may also affect their future licence to operate. For instance, Richard Branson was criticised for asking Virgin Atlantic employees to take unpaid leave.

Maintaining trust in supply-chains: While the localisation of supply-chains will force many to reconsider where they source products and raw materials, most supply-chains will remain global. Corporations need well-functioning supply-chains and as things slowly return to normal it is key that mutual trust returns. Primark’s decision to create a fund to cover the wages of overseas workers who were producing orders that have been cancelled is an excellent example. Entering into mutually beneficial longer-term contracts will also help.

Ensure the respect for human rights: The Institute for Human Rights and Business launched Respecting Human Rights in the Time of the COVID-19 Pandemic last week which includes a comprehensive check-list for companies to adhere to.

Supporting policy makers: As governments around the world are subsidising workers incomes, when the time comes to rebuild our economies, companies will be expected to support government initiatives to get the economy back on track and support all its stakeholders, mirroring the statements made by the US Business Roundtable in 2019.

In closing, here is a very appropriate quote from a recent article by Paul Polman on business' response to the crisis:

"The greatest business leaders will [...] play a longer game to serve the societies which host them in this moment of great need, offering people security and stability as an antidote to panic and fear. Employees above all will expect this. This extraordinary and overwhelming crisis demands more of our top executives as they help lead our response. The best will advance the interests of others knowing that it makes us all better off."

Stay tuned. Next week's post will look at how COVID-19 will change the way we work. And in the meantime please share your thoughts on how you think the current COVID-19 crisis will impact the sustainability agenda of businesses, society and regulators.

Tags

human rights, sustainability, citizenship, employee rights, privacy, globalisation, localisation, covid-19