The global pandemic and subsequent lockdowns have increased investors' focus on the role of companies in society, particularly around the treatment of their customers, suppliers and employees.
Notably, many workers who are on precarious contracts or receive low wages and few benefits are now viewed as essential to societal and economic systems. Furthermore, the pandemic has accelerated certain themes that have been observable for some time. These include digitalisation, automation, and a shift away from globalisation.
Emerging from lockdown, a new business reality is likely to be that in order to attract top talent, companies will have to offer attractive, flexible work practices. This could have numerous long-term implications, such as a shift in the demand and pricing of commercial office space, increased attractiveness of suburban living, greater spending on home offices and entertainment, and less spending on business travel.
We believe these pandemic-related factors and responses will change how we conduct business, and our lives, and will create both financial risks and opportunities for companies, which they will need to balance against their societal obligations.
In this context, the future of work has become an essential part of the ‘S' in ESG. It will be important, for instance, to gain a sense of which companies view their employees as assets rather than budget-line items. Which businesses are providing training to equip staff for the future of work, paying a living wage that ensures adequate living standards, and being mindful of work-life balance considerations?
Although the focus on social issues appears to have intensified during the pandemic, these factors tend to be less well understood by investors owing to the lack of transparent, high-quality data or disclosures. That said, active engagement with companies can go a long way towards better understanding and influencing corporate culture. And, when dialogue fails to yield results, executives and boards can ultimately be held to account through the power of proxy voting. Unlike many of their passive counterparts, active managers also have the ability to divest where persistent engagement and voting activities do not achieve the desired outcomes.
Our daily experience tells us that the future of work is here. With recent Pensions Policy Institute research finding that 75% of pension schemes expect members to become more concerned about social factors in investment decisions1, it will become increasingly important for DC schemes to demonstrate that their investment approach incorporates such considerations.
Rebecca White is a responsible investment analyst at Newton Investment Management
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