The ESG Review: Chinese study points to ESG improving corporate resilience

Amidst the usual slew of pro and con ESG stories this week, one piece caught my eye.

Nature magazine carried a report on a study carried out of nearly 3,000 publicly-listed Chinese companies into their ESG performance since the outset of COVID-19. It assessed whether their work to enhance governance and social factors in particular had enabled them not just to better withstand the shocks of the pandemic, but to become more resilient organisations for the longer haul.

It’s the first report of its kind that I’ve seen - interesting because these companies were at the epicentre of the outbreak and also because of the unique factors that concern running a business in China.

Some of what it covered may of course not apply to companies headquartered in western economies, but nonetheless the report provides compelling - and, dare I say, clinical - look inside the experiences of those firms when the S and G were put to the sternest test.

It also brought to mind a couple of conversations that I’ve had with corporate affairs directors in the past few weeks. I’ve heard the view that while they’re mindful of the criticisms that ESG investing, reporting and regulation have faced, their companies are continuing to pursue its broad agenda unabated, because “being a good business is simply good business”.

The report set out to understand the impact of ESG performance on corporate resilience, test the relationships between that and shareholder value during the pandemic, and consider which E, S and G factors drove the greatest resilience.

It concludes: “The research results indicate that companies with good ESG performance are more resilient in crises. The mechanism test indicates that the easing effect of corporate financing constraints and the expansion effect of corporate green innovation capabilities are important channels for ESG performance to promote the negative impact of crisis shocks on corporate value.”

While it should be underlined that this was a report compiled in China that looked at Chinese public companies and their ability to withstand the shocks of a crisis that began in China, its authors also say that it “provides a new theoretical perspective for the study of corporate crisis response capabilities”.

In other words, it begs the question of whether ESG may not just be a driver of broader stakeholder value that (irrespective of how that gets measured) is plainly good for business, but that striving to be a good business also invariably makes that organisation stronger?

It’s a long read, but the report does highlight that companies with strong governance were typically rewarded with better corporate finance conditions and so had more ‘room to manoeuvre’ in tight spots, and that the S factors tied to employee welfare and communities enable companies to better solider through tough periods because they maintained team commitment. Obviously maybe, but interesting to see it quantified in this way.

This piece in TIME assessed the realities of ESG investing currently, and differences between business in Europe and the US. It points to European investment continuing undaunted, potentially because the returns had had longer to show themselves. “Simply put, Europe has been in the ESG game longer. Investors have had more time to acclimate themselves and regulators are further along in the process of creating rules of the road,” it said.

Meanwhile, a report in the Wall Street Journal suggested that while ESG funds broadly underperformed last year, the absence of several giant tech stocks was the underlying reason, and that with those included the picture would have been a positive one.

The ways in which ESG-related performance is reported and applied for investment purposes may still be caught in the crossfire. But beyond that, data is increasingly showing that following a path to being a better business may well be good for stakeholders and shareholders alike.

The ESG News Review is written by Steve Earl, a Partner at PR agency BOLDT.

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