The traditional corporate imperative of maximizing shareholder value is increasingly under siege from a shift to “stakeholder capitalism,” which has accelerated during the pandemic, says S&P Global Ratings.

In a new white paper, the rating agency examined the phenomenon of companies drifting away from their historical focus on maximizing shareholder returns toward creating long-term value for a broader audience, including customers, employees and society at large.

“Recent surges in sustainable investing and increasing market scrutiny of ESG factors are calling into question the purpose of corporations and asking where their responsibilities to society begin and end,” said Michael Wilkins, senior research fellow, sustainable finance, at S&P.

The Covid-19 pandemic has accelerated this trend. As governments have stepped in to help cushion the economic effects of the pandemic on businesses, expectations of corporate social responsibility have increased, S&P noted.

“The Covid-19 crisis has reaffirmed the materiality of sustainability-related risks and the deep links between businesses and their stakeholders across the value chains,” Wilkins said.

As a result, “companies are now expected to invest more in employee health and wellbeing, safety protocols, fortifying cyber security, and ensuring business continuity,” — and they ignore those priorities at their peril, the white paper said.

“The appearance of unduly profiting from the pandemic or excessively bowing to shareholder interests could result not only in reputational damage but also extend to undermining a company’s license to operate,” the paper said, noting that this approach has backfired on a number of companies.

“In contrast, other businesses are taking actions that may ultimately strengthen employee engagement, brand, reputation, and ultimately business resiliency.”

These results may be reflected in shareholder returns. Indeed, the paper noted that companies in the S&P 500 ESG index outperformed the S&P 500 index by 2.21% since the ESG index launched in January 2019.

“[The S&P 500 ESG index] suffered fewer losses and recovered faster than the S&P 500 during the pandemic,” the paper said.

“Covid-19 may have acted as stimulus for sustainability-related growth but also, indirectly, as an opportunity for corporations to refocus their priorities in line with market expectations around sustainable growth.”

While it remains to be seen the extent to which Covid-19 will lead to lasting fundamental changes, “it is likely that effective stakeholder management will become increasingly important for companies to successfully operate in a world of weakened public finances, social scars, and environmental degradation,” the paper said.

Yet, the paper noted, it remains difficult to measure the stakeholder value a company creates. Improving that measurement will require enhanced disclosure.

To that end, the paper said that there is “a case for defining and implementing a new accounting system, and integrating environmental and social performance measures for companies, in order to propose real prices for goods and services that integrate negative externalities.”