Learnings from the Covid-19 crisis: Stressing the “G” in ESG

16th November 2020

Author(s) – Adwit KashyapShivani Verma

Firms with good governance have proven resilient during COVID-19 crises.

Environmental, Social, and Governance (ESG) refer to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. It can also be understood as the non-financial aspects of a business operation that has a material bearing upon the company’s long-term performance, wherein the “G” pertains to governance aspects of decision-making, from policymaking to allocating rights and obligations among the distinctive stakeholders. Firms with good governance have proven resilient during economic displacement caused due to Coronavirus pandemic. It has forced institutional investors to align corporate governance in line with sustainable development goals, fair labour practices, and stakeholder engagement. As a result, shareholders now tend to get hold of better-governed companies despite market uncertainties.


There is significant empirical evidence to state that the G component of ESG results in better corporate returns. With Covid-19 decimating the economy and looming uncertainty about the depth and duration of the crisis, the market has demonstrated that the share prices of better-governed companies are less hampered and are also honoured by good market returns. Good corporate governance helps to maintain business agility in a sustainable manner, which enables organizations to grow and adapt to unexpected shocks. As illustrated in the figure below, governance has become such a key differentiator where the stock value of the bottom 100 under-governed companies is much less than the top 100 better-governed companies. Also, it highlights the continuing challenge of poorly governed companies to recover from the financial crisis as happened in 2008. The penalty to the stock value of businesses that have not been governed properly is still in effect after 12 years.


July 31, 2007- February 28, 2009 (Financial Crisis) Dec 31, 2019 – March 31, 2020 (Covid-19 Crisis)
Top 100 (Better-governed co.) -37.78% -10.52%
S&P 500 TRI -47.53% -19.60%
Bottom 100 (Under-governed co.) -60.91% -30.04%

Figure 1: Analysis of the top 100 better-governed companies and the bottom 100 under-governed companies of the S&P 500 for the period April 2007 – April 2020.

The weightings of the 100 companies in the portfolios are based on their market capitalization following the same construction methodology of the S&P 500 TRI.

Source: https://www.imd.org/research-knowledge/articles/Good-Governance-Crash-Test-Covid-19/

The above table depicts that the market capitalization of the top 100 better-governed companies reduced by -37.78% in 2008 financial crisis & -10.52% in Covid-19 economic crisis. However, the market capitalization of the bottom 100 under-governed companies reduced by -60.91% in 2008 financial crisis & -30.04% in Covid-19 economic crisis, which was way poorer than top 100 better-governed companies. Thus, companies with poor governance scores suffered the most, whereas, the companies with good governance scores were able to absorb the shock accordingly in the declining market. Well-governed companies were also able to recoup their business with well-placed processes and stronger balance sheets over a period of 12 years in comparison to under-governed companies (DIDIER COSSIN, 2020). It is observed that governance act as a decisive factor for shareholders in the long-term functioning of the business.

The new Covid-19 crisis is rich in lessons for both businesses and their shareholders, equivalent to the 2008 crisis that has been in the past. The current scenario is marked by an increasingly diverse collection of pressures and demands from different stakeholder groups, heightened expectations of social participation and corporate citizenship, and radical ambiguity about the future. The findings observed will allow the investors to view the business organizations from the lens of good governance to make prudent investment decisions while prompting the board to participate enthusiastically in the management and incorporate the good governance practices into the business (Paine, 2020).


DIDIER COSSIN, I. G. (2020, June). The Good Governance Crash Test: Covid 19. Retrieved October 2020, from Institute for Management Development (IMD): https://www.imd.org/research-knowledge/articles/Good-Governance-Crash-Test-Covid-19/

Paine, L. S. (2020, October 06). Covid-19 Is Rewriting the Rules of Corporate Governance. Retrieved November 04, 2020, from Harvard Business Review: https://hbr.org/2020/10/covid-19-is-rewriting-the-rules-of-corporate-governance


About the Authors: 

Adwit Kashyap

Pro-Bono Member (ESG and Business Development)

Adwit is an experienced hand in consulting, business development and program management with a demonstrated history of working in the sustainable development space. With a bachelor’s degree from IIT Bombay and a business degree from the Indian School of Business (ISB), he brings an extensive experience of working with corporates, government and multilateral agencies in the Indian market.

Shivani Verma

Team Member (Content Developer)

Shivani Verma is a student at Indian Institute of Forest Management (IIFM), Bhopal, currently pursuing Post Graduate Diploma in Forestry Management (PGDFM). Having knowledge of ESG and Sustainability, equipped with the skill of mass communication, she is a part of vibrant team at JointValues as a content developer.