The future of work and the potential new investment opportunities
The coronavirus pandemic has put the ‘S’ in ESG – environmental, social and governance - firmly in the spotlight. There are significant implications for business models and the way that companies operate, as well as the future of how we work. Fiona Reynolds, chief executive of the Principles for Responsible Investment, a United Nations-supported international network of investors working together for a more sustainable global financial system, spoke to AXA IM clients on the issues facing companies and asset managers - and the potential new investment opportunities.
Investors have often started their responsible investing journey with a focus on governance, but over the last five years we have seen a strong move towards climate. As a result, social issues have been left behind - however the pandemic is helping to change this.
COVID-19 is exposing many weaknesses and biases that have been built into our social fabric. We can see this in the growing socio-economic divide and polarisations within populations. Many people feel they are being left behind and that the wealthy are getting wealthier while the poor are getting poorer.
Companies have had to get everyone working from home quickly, so the pandemic has also emphasised the need to create an economic model that works for everyone.
Getting it right
Employers have had to rethink their workplace models, to ensure revenues continue while also protecting workers. They have had to move to not just thinking about the immediate physical health and safety of their employees but also their mental health, ensuring they have access to the right tools and policies.
The pandemic has also highlighted a broader range of issues such as precarious work situations that had arisen as result of the ‘gig economy’ including zero hours contracts. Workers who have no basic entitlement such as sick pay end up going to work so they can pay their bills - in doing so the virus has spread and that has impacted us all.
Another area investors have focused on is supply chain management, which can be a challenging issue for businesses of all sizes. In the past supply chain management has tended to focus on efficiency, for example reducing inventory levels. But during the pandemic orders were often cancelled at very short notice, triggering force majeure closures. This has had far-ranging impacts on the wider supply chain and on the workers in the chain especially those in developing countries with no government social safety net.
Best practices versus company challenges
There has been a lot of good practice for example in the food and beverage and retail sectors. One supermarket chain reduced its payment terms from 14 days to 48 hours to help around 3,000 small suppliers, which was a lifeline for a lot of them.
In the meat processing sector in Singapore we have seen the early implementation of social distancing protocols, working from home where possible, the provision of good protective equipment and advice given in multiple languages. On the other hand, there were issues at some production plants elsewhere where there were reports that staff did not respect social distancing, weren’t wearing masks, and were going to work when they were sick.
The new normal
One of the new trends that will continue is working from home. This is challenging for businesses as it does require different management skills. Companies will really have to think about how to engage employees, keep loyalty, and build culture when people don’t come together. Firms also need to consider how they think about improving healthcare in the workplace, including mental health.
The recent Edelman Trust Barometer1 showed business is now more trusted than government – businesses are now the only institutions seen as both competent and ethical. Interestingly it also shows that peoples’ biggest fear was not the pandemic itself or getting ill with coronavirus - it was about job losses. Employers need to give as much certainty as they can, which very difficult in these uncertain times.
The generation gap
Many studies, as well as my own experience, show that young people are very concerned about ESG issues, particularly the environment, diversity and fairness in the workplace - and that they want to work for ethical organisations. To attract the best people in business now, it’s not just enough to dangle the paycheque, you need to demonstrate what your responsible employment policies are and how you put them into practice.
Because of this disruption, on-the-job training and making sure people are well integrated into the organisation is going to be essential, but it’s much harder to onboard people when you’ve never met them face to face.
Assessing the social pillar of ESG
In the environmental aspect of ESG we have been able to focus on metrics and measurable key performance indicators. This is arguably more difficult in the social sphere; it is harder to get that data but that is starting to change. We are working with a lot of organisations regarding how we build up the right metrics, and how we get meaningful and usable data for investors.
I don’t think we should let the perfect be the enemy of the good - we need to recognise there is still a long way to go, but there are good things happening in areas like gender diversity in terms of gathering information. But gathering information is one thing - it’s about what we then do with that data. We need to see some long-term change.
There is far more pressure on investment managers and asset owners to know not just what happening within their portfolios but also within their own organisation. With so much happening around Black Lives Matters and evidence of more of the black, Asian and minority ethnic communities being affected by coronavirus in some areas, it is good to see how businesses have stepped up and started talking about these issues. I don’t think these problems can be solved without the private sector – it has such an important role to play, and we can’t tell companies what to do and not do it ourselves.