COVID-19 brings social investment to the fore

The COVID-19 pandemic has placed a renewed emphasis on the ‘social’ aspect of environmental, social and governance (ESG) investing.

Companies that place a high priority on the wellbeing of staff are likely to be those that succeed in the long term – a point highlighted by the International Corporate Governance Network (ICGN) in a recent open letter to corporate leaders.

The ICGN, which represents 145 asset owners and managers with more than $54 trillion of assets between them, warned that the pandemic has “ignited an acute recognition of social failures”, including gender, racial and income inequality.

“COVID-19 presents a new era of engagement, one which reinforces the significance of this dialogue and elevates the importance of social factors as a key determinant to a company’s long-term financial health and sustainability,” wrote ICGN chief executive Kerrie Waring and chair Robert Walker.

The ICGN “has long advocated that board directors and investors have a shared interest – and thus a shared responsibility – in promoting the success of companies to preserve and enhance long-term value, contributing to strong economies and healthy societies”, Waring and Walker continued. The pandemic meant this shared responsibility “has never been so important”.

The letter highlighted key aspects of the ICGN’s Statement of Shared Governance Responsibilities that companies needed to prioritise at board level.

In particular, the group urged companies to prioritise the equitable treatment of their workforces, including contractors, and avoid redundancies where possible. It also called for a particular focus on female employees as they made up proportionally more of part-time and lower-paid workforces, which were often considered first when cutting staff.

It also called for dividends to be suspended and for remuneration policies to be enacted equally across staff at all levels.

The ICGN letter is available here.

Engagement a priority

The Financial Reporting Council (FRC), while responsible for the UK’s stewardship and corporate governance standards, has not provided much in the way of guidance on these aspects during the past few weeks. Its priority has been company reporting and auditing – understandable given that it is AGM and reporting season.

The lack of regulatory guidance emphasises the need for investor engagement, whether directly with companies, through proxy voting, or through collaborative initiatives such as the ICGN.

The ICGN is not the only advocacy group highlighting social issues in this way. ShareAction’s Simon Rawson points out in a recent blog post that the COVID-19 crisis is not the “great leveller” that some have claimed it to be. Indeed, the economic impact is likely to be felt most by the poorest and most vulnerable in society – and already is in some cases.

Consultancy group McKinsey this month published a report aimed at banks and financial services companies that have been forced to quickly adapt to remote working. In it, the authors urged company leaders to prioritise employee health and wellbeing, and to ensure diversity and inclusion work does not fall by the wayside during the crisis.

The authors also emphasised the importance of defining a company’s “social purpose” – a point echoed in the ICGN letter. McKinsey also highlighted communication and transparency as key elements of companies’ future planning, in line with the ICGN’s recommendations.

The McKinsey report is available here.

This AGM season is a prime opportunity for investors to engage with companies and ensure that the corporate leaders act in the best interests of their staff and wider society through this crisis and beyond.

Last Updated: 30 April 2020
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