When it comes to responsible investing, the past couple of years have been dominated by the increasing focus on environmental issues and what companies are doing to combat climate change. Thanks to high profile campaigners like Greta Thunberg and David Attenborough, public and investor awareness has risen.
But during the global pandemic, social responsibility has become a central consideration for both corporations and investors: the health and safety of workers, flexible work schedules, customer accommodations, and community services have all become a new focus.
The latest ‘Pulse’ survey of Fidelity International’s in-house analysts, back’s this up. More than half of Fidelity’s analysts believe the coronavirus crisis will have a profound impact on companies’ approach to social issues in future*, with companies stepping up their focus on workers, consumers and the wider community as a direct result of the pandemic.
Fiona O’Neill, deputy head of equity research, commented: “The health of staff has been at the forefront of company managements’ minds, and our analysts from just about every region and sector confirm that companies will devote more attention to employees’ safety and wellbeing in the future. But the changes will be deeper and broader than just that.
“The survey responses also demonstrate that the global virus pandemic will accelerate a wider move towards stakeholder capitalism. There are many examples of this emerging - from European telecoms companies offering free data or devices to people in vulnerable demographic groups, consumer staples firms increasing their involvement in public hygiene initiatives and even pharmaceutical companies developing vaccines with plans to distribute at cost price. How persistent the post-virus changes prove to be, and whether additional costs will depress margins will emerge in the months to come.”
Data from Goldman Sachs also corroborates this theme. The chart below shows that the top 10 largest US employers are taking on more social responsibility post-COVID**.
But what do the managers who invest responsibly think? We asked five managers, with ESG at the core of their investment process, to give us their thoughts on social responsibility. Here’s what they had to say.
“As an investor, I think you have a better chance of success if you understand a company in the context of all of its stakeholders – so E, S and G issues will all continue to be important. But I think the pandemic has put the spotlight on environmental and social issues especially. With lives and livelihoods at stake, it is a matter of survival for companies to retain the confidence of customers, staff, supply-chain partners and communities – so they need to be strong ‘S’ (social) performers.”
“The social side of ESG will be increasingly important next year. Of the three (environmental, social and governance), social has perhaps been the hardest to pin down in the past but, given the seismic changes we have all faced in 2020, we believe people will increasingly reassess exactly what is most important to them as the world recovers. That might mean family, work-life balance or prioritising experiences over consumerism, and businesses will have to adapt to thrive in whatever new normal ultimately emerges.”
"I think S will be the dominating theme in 2021 for obvious reasons: fighting the health crisis. So far this year, the social bond market grew by 75%, and I can see a similar growth rate next year to finance the response to the pandemic and its economic consequences. Issuers now see green bonds as a credible funding tool, and I think social bonds will follow the same path.”
Noelle discusses green, social and blue bonds in this video:
“I think that social issues will loom large in 2021. The covid-19 pandemic brought about an extraordinary set of circumstances, with entire societies locking down and whole slices of the global economy effectively going into hibernation. The social implications of this will be significant, in terms of health - both mental and physical -, poverty, unemployment, labour conditions, new flexible models of working, technologies which have sprouted up to ameliorate lockdowns, just to name a few. Companies will have to navigate these social issues astutely and ethically, and as investors we will need to be acutely aware of them.”
“The pandemic has led to increased interest in the ‘S’ in ESG with more focus on social justice and inequality. Whilst the ‘E’ has always garnered most of the headlines, investors are now challenging companies to show leadership on the social front encompassing diversity, supply chain operations and labour relations. But it is actually via the ‘G’ - and in particular proxy voting - that active managers are best able to engage and influence company management on delivering on these broader environmental and social goals.
*Source: Fidelity International, May 2020
**Source: JUST Capital, 7 May 2020
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and commentators and do not constitute financial advice.