The Covid-19 pandemic, together with the Black Lives Matter and the MeToo movements, have increasingly turned the attention of ethical investors towards social factors like human rights, equality and health and safety. These areas are serving as a catalyst for change and reshaping the way investors view the role of companies, especially in terms of their relationship with stakeholders such as employees. The increasing focus on the importance of people in business has pushed the S of ESG to the top of the agenda.
Pandemic-driven challenges, rising inequalities, and growing calls for social cohesion have sparked increased scrutiny on the social practices followed by companies. As social factors are gaining prominence, investors are paying closer attention to understand if companies are fulfilling their social responsibilities in the current climate.
Some of the key social themes that have emerged in the wake of Covid-19 and are at the centre of conversations right now, include:
Employee Welfare
Managing employee wellbeing has become a top priority for companies, especially after the historic shift to remote working last year. For working from home to pressures to be sustainable, companies are considering working styles that offer greater flexibility and boost employee productivity at the same time.
In a remote working environment, fostering social values through collaboration and promoting diversity practices to grow relationships, drive positive cultural change, and help contribute to building a happier workforce have all increased in focus. Such an approach is backed up by research studies which further reaffirm that diversely structured companies are more likely to outperform less diverse peers when measured on profitability.
Many Australian companies, including Appen, have taken conscious efforts in creating collaborative work cultures through webchats, internal community forums where employees share their ideas, and day-to-day updates while working from home. Such initiatives taken by firms are supporting remote teams by assisting them to strengthen professional ties.
Employee healthcare and safety
Workplace health and safety has been at the forefront of considerations during the global pandemic. Companies are ensuring their employees, especially those in the essential industries, are suitably equipped and have adequate space to work safely.
Furthermore, organisations are also implementing suitable healthcare systems that are beyond mere physical care protections to address the rising mental health concerns of remote workers. By improving healthcare options through telehealth facilities and mental health counselling sessions, firms are effectively addressing their employees’ needs and are thriving in an unpredictable business environment. Commonwealth Bank’s A Better Day initiative, which launched last year, is providing mental wellbeing support to its employees through personalised mental healthcare programs.
Global organisations are responding to the current crisis by creating additional value for their employees through significant contributions in the name of public health and safety. With a clear link between positive social engagement and the reputation of a company, it is essential for investors to know how to measure the social performance of investee firms while integrating social factors in ESG analysis. Backed by research studies, incorporating social elements is a holistic approach towards investing that not only supports returns over the long-term, but also makes an investment thesis more robust, especially when market volatility is high.
As Australian companies continue to expand their social impact efforts, here are some of the ways to assess the progress:
Identifying the key performance indicators
Recognising appropriate indicators can enable investors to determine if social goals are being met. For example, are companies integrating the Sustainable Development Goals and Global Reporting Initiative (GRI) to disclose key performance indicators such as the rate of employee turnover? Understanding indicators like employee turnover indicates employee engagement which has implications for productivity and company reputation.
Knowing the frameworks used in reporting
Companies should follow universally used guidelines, including the GRI to report their sustainability practices. In view of this set of standards, they should report their performance data, market information, and disclose socially material topics that are impacting their stakeholders. This makes it easier for investors to compare a particular firm’s efforts with its peers.
Understanding social scores
By considering social scores, investors are able to gauge the company’s exposure to social risks and commitment towards social activities more effectively. Firms with good social scores generally prioritise long-term value creation over short-term gains and are more resilient. These social scores are determined by different rating agencies as well as internal investor investment processes.
We remain in the foothills of societal expectations for corporate engagement in ESG issues. However, Covid-19 has shown how a change in perception and action can be brought about in a short period of time, with momentum firmly on ESG’s side.
Madhumita Mukherjee is a contributor at Altiorem and has a Master’s degree in Finance and B.E Mechanical Engineering
Vincent Wales is mentor at Altiorem and Senior Analyst at Aware Super
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