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Don’t distance from Social

Don’t distance from Social
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ARTICLE TYPE
Sustainability Soapbox
TOPIC
Responsible Investing
PUBLISHED
August 28,2020
READ TIME
2 mins
AUTHOR
Audrey Ryan
SHARE
Back
ARTICLE TYPE Sustainability Soapbox
TOPIC Responsible Investing
PUBLISHED August 28,2020
READ TIME 2 mins read
AUTHOR Audrey Ryan
SHARE

‘Striving for social justice is the most valuable thing to do in life’ Albert Einstein

 

The ‘S’ in ESG is often overlooked in favour of the more tangible ‘E’ but the global pandemic has reminded us of the huge global inequalities in factors such as income, health and diversity; as well as the value that can be created by addressing them. Investors globally, and society at large, are increasingly scrutinising companies’ behaviour towards all of their stakeholders, whether they be customers, employees or suppliers. It is vital that companies evolve their social practices and provide greater transparency on key social issues, thereby reducing risk and enhancing sustainable returns for investors. 

 

Analysing and measuring social factors can be complex given the greater reliance on qualitative aspects and differing norms around the world. As active investors, we have recently engaged with many corporates that have, in the main, reacted to the circumstances with commendable measures such as more flexible working practices, paying smaller suppliers early or topping up the pay of furloughed employees. In addition, many senior managers have voluntarily reduced their remuneration packages – a welcome move at a time when the gap between the lowest and highest paid in society is increasing. Finally, a number of our investee companies have actively re-focused their attentions to help society battle the pandemic, either by providing Covid-19 support and testing solutions or working to develop a vaccine.

 

Workplace diversity, which empirical studies have shown to improve corporate performance, also has a role to play in a more socially equitable environment and should be aided by more flexible working (and perhaps as importantly, hiring) practices. This is another topic that we actively engage with companies on, to better understand the challenges they face and actions they are taking. Encouraging the laggards to strive for improvement is a vital part of a comprehensive stewardship strategy.

 

Unfortunately, some companies continue to prioritise purely financial performance at the expense of social considerations for their stakeholders, resulting in negative consequences such as sub-standard levels of safety and/or pay for employees or unacceptable supply chain behaviours. This is a red flag for investors, as it can lead to negative impacts from either an operational or financial perspective (e.g. increased employee turnover, reduced customer loyalty) and proves the fallacy of believing only financial performance matters. Indeed, a positive social contribution from a company is much more likely to command a premium valuation and a competitive advantage.

 

As so often happens, the most challenging environments result in positive change! The increased focus on social issues as a consequence of the pandemic is likely, in time, to prove a positive for stakeholders and encourage change (or failure) from those with sub-standard practices. As ever, corporate culture remains key and the best management teams appreciate that extra-financial aspects matter for the operational and reputational strength of their business and the sustainability of its financial returns. The catalyst for change in many social aspects not only complements developments on the environmental front (haven’t we all enjoyed less congestion and pollution during lockdown?) but continues to raise the awareness of the positive aspects of ESG momentum across the full spectrum of the E, the S and the G.

More about the authors

Audrey Ryan Investment Manager

Audrey Ryan, investment manager, is a member of the equities team and is responsible for managing various strategies.

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