The private sector plays a fundamental role in responding to COVID-19 in emerging markets
As businesses worldwide grapple with the effect of nationwide lockdowns, it’s clear that COVID-19 has provided an opportunity to reflect on responsible investing and business practices in the private sector.
Social risk is a broad term which primarily focuses on the management and engagement of people across the workforce, community and wider stakeholder groups. It is a topic which has risen to the fore during COVID-19, as firms consider not only the impact of the pandemic on business operations, but also its impact on workforces and local communities in relation to issues such as health and safety or job protection. For companies that operate in remote locations, work closely with communities, or in some cases are a community’s sole employer, the pandemic has exacerbated existing social risks and created additional risks that companies must now consider as part of their COVID-19 response. This shift has been felt by investors as well as businesses: in a recent survey by BNP Paribas, 70 per cent of investors said social factors are now a focal point of their investment approach, compared to 50 per cent before the crisis.
In response to these new challenges, we hosted online workshops on social risk management during COVID-19 to provide practical support to investees as they respond to the impact of the pandemic in real-time. Attended by 130 participants from 30 of our portfolio companies and 14 Fund Managers across 17 countries in Africa and South Asia, the webinars sought to facilitate ideas-sharing through open forum discussions.
Despite the wide geographical and sectoral perspectives of participants, several common themes emerged during the discussions. Here are our top observations, which we hope will be of use to other investors and businesses:
Social risk management is key to both business continuity and the long-term rebuilding and recovery of economies. COVID-19 has emphasised the need to ‘build back better’ and has also shone a light on the cross-cutting importance of the ‘S’ in ESG which can often be overlooked.
“This session was very thought provoking and certainly got me thinking about issues that I hadn’t considered.” – Agribusiness investee, Southern Africa
Social risk management should not be seen as a discretionary spend, in contrast to corporate social responsibility (CSR) or philanthropic activities, but rather as integral to the operations of reputable Funds and companies. COVID-19 has highlighted the importance of social risk management for a business’ social license to operate and its critical role in crisis management that needs to be integrated into wider business strategy.
“I’m more alert to examine the emerging virtual risk landscape. I’m also awake to the fact that we need to manage employee expectations.” – Healthcare investee, Kenya
As expected, health and safety and job protection remain priority areas in workforce management, however two subthemes relating to the pandemic were also widely discussed: cyber security and disciplinary procedures.
The shift to working from home for many businesses has increased cyber security risks, as there is concern that firms may not have the IT systems in place to manage data appropriately. In addition, as COVID-19 testing increases, considerations should be made on how employee health data is used and stored.
As operations resume with new safety measures in place, companies will need to revise and clearly communicate disciplinary procedures should workers not follow company protocols. It was widely recognised that additional safety measures, such as social distancing and PPE, may affect productivity and as such, any disciplinary procedures relating to under-performance will need to be adjusted to reflect this.
“It is quite meaningful and excellent initiative of CDC to host this event amidst the outset of the COVID-19. We anticipate different challenges in the management of social issues as the businesses recover from the impact of COVID-19. This program will certainly give us a fresh perspective and a good opportunity to learn on the social risk management areas during the crisis period.” – Financial Institutions investee, Nepal
Risks associated with gender-based violence and harassment were also discussed – CDC has recently published guidance addressing this topic in partnership with IFC and EBRD, which is available on our website.
Building trust, listening and accommodating alternative views will be vital to recovery for businesses. Communications and grievance mechanisms were identified as fundamental pillars to social risk management, including in the post-crisis phase. It was recognised that grievance mechanisms may need to be revised to account for concerns related to the safety of workspaces, working remotely or tensions arising from changes to company operations. It is essential that companies assess the effectiveness of their response to COVID-19 and the way in which they communicate throughout the pandemic. Inclusivity in decision-making and communication is a critical component to social risk management, both internally within the workforce and externally in communities.
Many investees noted they often carry a weight of responsibility in the communities that neighbour their operations, particularly when they are the community’s sole employer. Numerous companies cited initiatives they have implemented with neighbouring communities, including the delivery of food packages and providing hygiene and sanitation training. Investees highlighted that often neighbouring communities and the company workforce are inextricably linked, and therefore ensuring support and a positive relationship with communities is key f0r workforce management.
This article was previously featured on CDC's website