By Alvise Munari, Global Head of Coverage, MSCI
As the first wave of the pandemic rolled across the world last year, many companies turned their attention to their people. Keeping workers, customers, suppliers and communities safe and well became imperatives for staying in business.
The moment proved fleeting.
As a new report from ShareAction shows, while companies – and those who invest in them – could play a pivotal role in securing a healthier, more sustainable society, the status quo currently undermines this goal.
Companies can put workers at risk, sell products that legally harm consumers and still secure investment and turn a profit. Ultimately the costs of their impact are instead borne by the public and society at large.
The long view: how investors can use climate risk as a model to build healthier societies
Most asset owners and managers do not demand that companies make devoting some of their balance sheet to people a priority.
This is counterintuitive.
Companies that threaten human health will struggle to succeed in the long term.
But, sadly – as we know from the climate debate – long term sustainability isn’t always prioritized over short term gains. Science has warned us for more than 40 years of the link between carbon emissions and changes in the climate.
It wasn’t until investors and the public began to understand the intergenerational financial risk climate change presents that companies started to make climate change part of business strategy.
But this is still not yet the case for health.
Less than 1 per cent of mutual and exchange-traded funds that invest globally in healthcare go even halfway to achieving the UN Sustainable Development Goal of ensuring health for all, an analysis by MSCI has found.
Whether it is unsafe workplaces, unhealthy food and other products and practices, ignoring health comes at a cost – for both companies and society at large.
This could come in the form of missed work, higher insurance premiums or government spending on health care. Investors have a critical role to play in addressing the problem.
Health-related risks, like the risks of a warming climate, cannot be diversified away. They reach every corner of the economy.
Addressing health, like addressing climate change (itself a contributor to death and disease), will take a mix of private sector investment, regulation and public money.
It can start with the rerouting of capital by large asset owners, like pension funds, who want to make this a healthier world for all of us to live in and retire into.
A new health framework for channeling capital
To redirect capital toward health-related sustainability, asset owners and managers need greater disclosure, improved data and a willingness to act.
ShareAction has put forward a framework for helping companies and investors account for, report and address health impacts. It considers worker safety and wellbeing, consumer health and a company’s impact on its community.
The framework, which parallels the three scopes that investors use to categorize corporate greenhouse gas emissions, offers a much-needed structure for disclosure.
The data remains to be defined. But if we can estimate the rise in average temperatures likely to be caused by corporate carbon emissions, we should be able to measure the number of years of life lost to poor health per million dollars of revenue.
Transparency: the key to unlocking investor action on health
As with carbon emissions, much of the information that investors need comes from companies.
Investors depend on disclosure. This gives them the information they need to assess health-related risks and opportunities.
We also need to collect and analyze data that shows the resilience of companies to health risks, much as we collect data today from a multitude of sources about a range of environmental, social and governance (ESG) risks.
Together, disclosures and data help investors determine the risks they’re taking. It allows them to see how their capital connects to health effects that can undermine shareholder value. It also enables them to assess the positive externalities of such things as good nutrition and the protection of workers, tailor their engagements with boards of directors and senior management, and allocate capital accordingly.
Like the world we live in, owners and managers of capital are increasingly aware of the intersection of health, climate and other risks to human capital.
The more we make explicit the connection between such risks and returns, the more investors can consider them when seeking investment opportunities that would also create a more sustainable society.
