Feature – ESG Club Conference 2022
ESG CLUB CONFERENCE: THE S IN ESG
There is more to ESG than protecting the environment. There are also social outcomes that need to be achieved if we are to build a sustainable world. Covid has highlighted some of the inequali- ties in society, making the social pillar of ESG a must for discussion at a sustainability confer- ence. We invited three insiders to the stage to debate what the big issues are and how to pro- duce better social outcomes.
Making positive social impacts and empowering communities can take many forms. For M&G fund manager Thembeka Ste- mela Dagbo it could mean backing micro-lenders who are pro- viding financial inclusion at affordable rates designed to avoid problem indebtedness. Or companies that build vital infra- structure to improve telecommunications. But as the three pillars of ESG are interconnected, not all social impacts are intentional. “It is important that companies under- stand that in creating renewable energy, they are also limiting any negative externality that might appear on the social side,” Dagbo said.
There has been an emergence of impact funds focused on tack- ling environmental issues or driving social change, which means social impact investors now have a broader array of options, rather than simply targeting individual companies. “These funds are not just about financial returns but evidencing the sus- tainability elements or the positive impact that have been creat- ed by the holdings within these funds,” Dagbo said. “It’s a good way for investors to look into social outcomes, but also keep fund managers accountable to ensure they are investing in companies driving change,” she added. “There will be annual reports explaining how the fund has created these impacts.” Despite the new ways the industry has found to help investors make positive social changes, engagement remains a key in- gredient. “It is our responsibility as investors to use our man- agement access and votes to push companies to do better on
38 | portfolio institutional | September 2022 | issue 116
the social front, for the employees and for the communities they are serving,” Dagbo said.
Missing link Much has happened in the past two years with the pandemic disrupting so much of our lives. But has it made investors think more about the social pillar of ESG? “It is fair to say that social issues have always taken a backseat to environmental issues,” said Jessica Attard, a socially focused programme director at ShareAction, a responsible investment charity. “Social issues have historically been less well defined, less well reported on by companies and so it has been difficult to make the link between social issues and financial materiality,” she added. “But we are seeing investors, especially since the pandemic be- gan, picking up and running with social issues, particularly health. We have seen in the past few years’ tangible real world ex- amples of how social issues can affect a company’s bottom line.” Examples include Boohoo and the allegations of labour rights abuses which wiped £1bn off its value. Another example is Kel- logg’s saying that incoming UK food standards would cost it £130m a year in lost sales. “We are seeing these social issues play out into the financial materiality of many companies,” Attard said “The pandemic is a real life example of that, with the global economy shrinking by 4.4% in 2020 and many companies financially affected by what was a public health issue.
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