Cost of living will shake up ESG priorities – putting ‘fairness’ centre stage

23 May 2022

By Declan McHugh

The cost of living is now the number one concern for hard-up Britons, making it the number one concern for government. It will be the central political battleground between now and the general election. But debates about the cost of living won’t be confined to the political sphere. Business is already being drawn into this battle and will soon find itself under the sort of pressure normally reserved for government ministers.

In recent years, the principal focus of corporate ESG strategies has arguably been on sustainability, reflecting deep public concern about environmental issues. But the immediate focus of public anxiety is now rising prices. As one participant in focus groups recently conducted by Helm put it, “The green agenda is important, but we need to prioritise costs.”

With the impact of inflation now coming into stark relief, the heat will be on business – and especially those trading in the necessities of life – to do their bit to lighten the load on people’s pockets by playing fair with consumers.  

That is especially true for those who suffer from what is termed the ‘poverty premium’. Organisations such as Fair by Design have shown how low income households are paying more for energy, credit and insurance, spending the equivalent of 14 weeks’ of food shopping just to access the same services as those who are better off.

But with households facing the biggest cut to living standards in 70 years, the current financial squeeze will be felt well beyond the poorest in society, reaching into the lives of middle income households who will find a ready audience for their complaints among mid-market tabloids and backbench MPs, if they feel their pockets are being unjustly picked.

This means that perceived sharp practices such as shrinkflating products, uplifting direct debits and insidiously creeping terms and conditions will move beyond constituting petty consumer annoyances and instead threaten to explode into the realms of tabloid scandal.

More than ever before, higher prices and harder terms will be scrutinised and subjected to a fairness test – especially if the companies behind them are seen to have separately benefited from corporate tax reliefs or publicly funded covid support.

In the past week the Business Secretary, Kwasi Kwarteng, wrote to leading petrol retailers “to remind them of their responsibilities” to pass on fuel duty cuts to motorists. At the same time Money Saving Expert, Martin Lewis, erupted at news that Ofgem was proposing changes to increase competition payments between energy companies at the expense of consumers who would lose out on cheap deals. 

We can expect more of this. Banks will soon be confronted by questions about how to treat mortgage holders who are unable to keep pace with rising interest rates. Utility companies will face a similar dilemma about how to handle customers who begin to default on higher bills for power, water, broadband, phone and TV connections.

The same will apply to wage negotiations. There is evident concern amongst policy makers about what demands for higher wages will do to inflation. But with the pay gap between chief executives and employees reportedly set to rebound upwards this year, any move to hold or depress wages will inevitably lead to closer scrutiny of those advocating it, as Andrew Bailey has found.

With dark economic clouds gathering, many companies are revisiting the covid playbooks that provided for the lenient treatment of consumers who struggled to keep up with payments during the pandemic. They would be wise to do so. There is undoubtedly a greater expectation today, amongst a more communitarian-minded public, that business has a responsibility to extend forbearance to consumers in times of economic difficulty.

In this context we may expect a shift in corporate priorities, at least in the short term. Idealistic pledges around climate change, pollution and equality and diversity are likely to be overtaken, for now, by the brute political reality of day-to-day challenges facing consumers. Chief executives sitting in the select committee hotseat or the Today programme interview chair should expect a rougher ride to justify their salaries and be able to demonstrate a clear understanding of the strains facing those who work for them or buy from them, and what their business is doing to help. Those who fall short risk becoming the poster boys/girls for crony capitalism.