ESG investors need to up their game in holding companies to account on social issues such as labor rights and employment contracts, said the head of biggest network of responsible investment firms.
Fiona Reynolds, chief executive officer of the Principles for Responsible Investment, said in a blog post Friday that firms which consider environmental, social and governance issues when investing have paid too little attention to “the modern forms of exploitation surrounding the gig economy.” Lack of paid sick leave or benefits have left millions of workers in precarious positions as the coronavirus and the lockdown it’s inspired cost workers their jobs and income with no safety net, she said.
Reynolds comments come as the spreading pandemic prompts ESG investors that had made fighting climate change their top priority to redirect their efforts towards social issues. Some of the largest investors say they are focusing more on how companies treat employees during the pandemic, while stressing they still care about limiting fossil fuels.
“When we talk about the E, S and G, S has always been the poor cousin; it’s the issue that gets left behind,” Reynolds said in an interview. “We are human so you’d think we’d prioritize things about other humans.”
To make the point, Reynolds said the PRI now recommends its more than 3,000 members, known as signatories, which together oversee more than $90 trillion of assets, focus their engagements with companies on their response to coronavirus and postpone discussions on other topics.
Stewardship is a key tool used by asset managers to pressure the companies in which they’re invested and the global pandemic is occurring at the same as the approaching annual general meeting season, which is a key moment for investors to take companies to task.
The PRI, which is supported by the United Nations, also is creating two working groups to coordinate a response to the coronavirus. One will focus on “ensuring responsible ESG approaches remain at the forefront of investor activities” in the short term, while the other will consider “how the financial system should function to ensure sustainable outcomes” in the longer term.
Reynolds said climate change, which was the preeminent focal point for investors at the start of the year, should remain a key focus and that investors should use their weight to insist on “a green and sustainable backbone” to any stimulus.
“I don’t want to say people aren’t concerned about climate anymore, but this is where people recognize a company is not going to want you to go to them to talk about their emissions reductions strategy,” Reynolds said. “They have other things on their mind that they need to be focusing on.”
The coronavirus outbreak and the resultant convulsions in financial markets should prove a good test of investors’ commitment to fighting climate change and to ESG investing more broadly. With countries in lockdown, causing economies to contract and asset prices to fall, investors are trying to limit their losses.
“We can’t let what is going on in the world and in the markets mean that we lose momentum in ESG,” said Steven Desmyter, co-head of responsible investment at Man Group Plc. “We are living through a once-in-a-generation crisis in public health and the world of ESG can feel very distant when you’re dealing with the immediacy of a panic like this one.”
ESG investing, which at a minimum involves fund managers thinking about a company’s environmental or social impact alongside purely financial metrics like revenues or profits, has ballooned to a more than $30 trillion industry.
“Lots of companies talk about their sustainability credentials and it’ll be very interesting in this period of crisis to see how investors and companies respond,” said Reynolds. “We’ll see how they stack up and will find some are wanting.”
Source: Heartland Capital Strategies