Partner Insight: Three ways social considerations can enhance portfolios

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Partner Insight: Three ways social considerations can enhance portfolios

Over the last decade, the financial materiality of sustainability considerations — often regrouped under the acronym ESG — has steadily moved up investment agendas. Historically, investors have directed their attention mostly to environmental (E) and governance (G) concerns. However, key developments, notably deglobalisation, greater focus on labour relations and supply chain management, AI and the need for a just net-zero transition all point to the growing financial materiality of the social (S) dimension. Applying such a lens can help investors assess companies in areas that are increasingly vital to long-term success, such as corporate culture and supply chain management. We have also observed that in certain circumstances, social themes may serve as an additional diversifier. For instance, companies in areas such as education have historically displayed defensive qualities.

In 2023, Wellington held over 17,500 meetings with more than 5,500 public-market issuers,1 covering an array of topics, including social themes. The outcomes of these discussions enrich the wider research mosaic that investment teams across the firm leverage. They also help inform our proprietary ESG scores, our research on the risks and opportunities of a just net-zero energy transition and our anti-modern-slavery framework. Our 2023 tracked engagements also reflect the growing importance of social topics (Figure 1).

Figure 1 Social factors are a critical part of Wellington's engagement activity

Tracked engagement by category

 

Source: Wellington. For illustrative purposes only. Data is from 3,411 tracked meetings in which E, S or G topics were covered. Most engagements cover multiple E, S and G topics and therefore the tracked engagements by category are indicative only. Data as of 31 December 2023.

Against this backdrop, we set out three specific ways to translate social risks and opportunities into the potential for greater and more sustainable returns. The three avenues we explore take distinct directions — adopting a stewardship, thematic and impact perspective, respectively — but all share a focus on active management and engagement.

 

The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only. 

1Source: Wellington. For illustrative purposes only. Data represents meetings with public-market issuers as of 31 December 2023. "Issuers" refers to companies and sovereigns. For the Wellington Management group of companies. While all meetings inform our investment processes, ESG topics are not covered at every meeting. 

Disclaimer

For professional, institutional and accredited investors only. Capital at risk. The views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. While any third-party data used is considered reliable, its accuracy is not guaranteed. This commentary is provided for informational purposes only and should not be viewed as a current or past recommendation and is not intended to constitute investment advice or an offer to sell or the solicitation of an offer to purchase shares or other securities. Holdings vary and there is no guarantee that a portfolio has held or will continue hold any of the securities listed. Wellington assumes no duty to update any information in this material in the event that such information changes.

In the UK, issued Wellington Management International Limited (WMIL), a firm authorised and regulated by the Financial Conduct Authority (Reference number: 208573). In Europe (ex. UK and Switzerland), issued by Wellington Management Europe GmbH which is authorised and regulated by the German Federal Financial Supervisory (BaFin)

©2024 Wellington Management. All rights reserved. As of 1 Jan 2024.

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