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All eyes on the “S” of ESG: How companies and investors should respond to the pandemic

Covid-19 has shone a spotlight on the social (“S”) component of ESG in a way that we have never seen before, especially the way businesses are treating their workers.

By Simon Rawson, Director of Corporate Engagement, ShareAction

We’re living through a global health crisis. One that is likely to define our lives for decades to come.

You only have to listen to the accounts of healthcare workers on the frontline, or the stories from families who have lost loved ones before their time, to get a sense of the devastating impact this crisis is having.

At the same time, we are still only touching the edges of the potential economic fallout of Covid-19. Nearly one million people in the UK have already applied for Universal Credit since the lockdown began. Some 40% of employees could be furloughed by companies using the UK government’s job retention scheme.

By most forecasts, we’re heading for a recession that is going to be deeper than 2008, at an even faster rate.

Not a “great leveller”

And like so many other crises, far from being the “great leveller”, Covid-19 is hitting the poorest and most vulnerable hardest. We now see that our “key workers”—those that are keeping us going—are the low paid, precarious workers: healthcare assistants, supermarket workers and delivery drivers.

They don’t have the option to work from home, and can’t afford not to work, so put themselves at greater risk, daily.

The links between inequality and health are well known—people living in poverty are more likely than their wealthier counterparts to have multiple long-term health conditions. This in turn puts them at greater risk from Covid-19.

Black and Asian communities in the UK, which often live in more deprived areas, are seeing Covid-19 cases at nearly three times the rate seen in the population as a whole.

Spotlight on the “S” of ESG

Covid-19 has shone a spotlight on the social (“S”) component of ESG in a way that we have never seen before. In the first instance this is about the way businesses are treating their workers. Are they protecting jobs as far as they possibly can, or are they letting people go while still paying dividends and executive bonuses?

For those that are still working, are companies taking all possible measures to protect the safety of their employees? And are they supporting suppliers, which are often in the world’s poorest countries, to weather the storm?

Some companies are going further, adopting a new social purpose. Some manufacturers have joined the fight against Covid-19, repurposing production lines to make face masks, alcohol gel or ventilators. Others are serving customers in a way that no longer prioritises short-term profit, with the media and entertainment firms offering free access to content.

There are other dimensions too.

Corporate responsibility for public health has been drawn to the fore. More than 70% of all those admitted to hospital with Covid-19 are overweight or obese. Food manufacturers and retailers that produce and market unhealthy products have contributed to our national obesity crisis.

And, while it is far too early to think about root causes in a pandemic that is still fast unfolding, many experts think that the way the agricultural industry has expanded industrial farming practices in countries such as China, has given rise to the conditions which have allowed this virus to start threatening human health.

Investors can drive change

Before this crisis, in the fight for environmental sustainability, the world was starting to realise that it is not just companies, but also those that invest in them, who can create change. The shareholder resolution that ShareAction has led at Barclays, which looks set to commit to a net zero carbon ambition by 2050, is an example of how we can harness the power of the investment system to drive these outcomes.

There are early signs are that the markets agree. ESG funds have outperformed so far in the downturn, with 60% of European ESG exchange traded funds beating the MSCI Europe Index. Volumes of Green Bonds have held up too, despite the downturn.

All this suggests some recognition that companies which focus on the long-term are also most resilient when faced with shocks like Covid-19 in the short-term.

Raising the game for “S”

Now is the time for investors to give equal emphasis to the “S” of ESG. We need to define afresh what responsible investing looks like for social issues like decent work and public health.

We need standards for both companies and investors themselves, akin to those that have become accepted for environmental sustainability.

We need data and disclosure about what companies are doing so that investors can act with conviction as stewards.

And we need to drive the socially responsible practices that consumers and society expect to see

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