Feature – ESG Club Conference 2022
and how corporates can promote better standards of health throughout the supply chain. “We are keen for investors to start thinking more about this as health in the UK and beyond is not what it should be,” Attard said. Only one in 10 men will retire in good health, Attard said, a worrying statistic that highlights this problem. “A huge propor- tion of people are prematurely exiting the labour market,” she said. “Modelling shows that a third of the productivity gap be- tween the North and the South in the UK is a result of health disparities.” So poor health is impacting productivity and reducing the size of the skilled workforce.
A long-term view
All of these considerations appear to be factors for those want- ing to reduce inequality and improve people’s lives. But is this only for those with a long-term investment horizon? Dagbo said that when an investor is considering making a so- cial impact, they have to apply a level of long-term thinking. For example, when investing in an affordable education com- pany, it may take decades to understand the impact the invest- ment has made. “There is a level of long termism when think- ing about making a social impact,” she added. However, there is another option. There are mature companies that have been creating social impacts for decades and can evi- dence those impacts. “So short-term capital can also go in and invest on the understanding that the outcomes have already bore fruit,” Dagbo said. “In general, there is a misconception that when we are thinking about social impact investing, we either have to wait a long time to get the returns, or not get them at all. “Essentially, there is this idea that it’s more philanthropic, but that’s not true,” she added.
What to measure?
Investors like to measure the performance of their invest- ments, which is straightforward if you are tracking the finan- cial health of an asset. But the social outcomes of an invest- ment are “difficult” to measure, Ortino admitted. Of all the issues covered by the social pillar of ESG, she added that the easiest data to find is on diversity and human capital. But Dagbo believes that such figures do not tell the whole story. “People can look at representation data and say they have achieved diversity. But whether you have created an inclusive workplace or an environment where it can continue longer term is where it becomes a bit more subjective.” The problem with getting data on issues outside of diversity and inclusion, such as healthcare, for example, is knowing what to measure. Could it be company policy? The provision of health insurance?
This can be a problem when setting the growing number of 40 | portfolio institutional | September 2022 | issue 116
ESG corporate scores that are available for investors to consid- er as part of their research. “We have an ESG score which will look at diversity,” Ortino added. “That is how far we can get when it comes to the S. It is difficult to include anything else.”
Dagbo responded that if data is hard to come by then engage- ment is needed. She gave the example of micro-lenders in In- dia, who know their customers so well that they have a low lev- el of non-performing loans. “A big part of that is because the loan officer is just down the street.
“That intimate knowledge is something where we can push companies to go a step further, not just in measuring how many micro-loans they make, but to evidence what they did with the money,” she added. “What outcomes came out of it? Did it improve livelihoods or grow a business? “This is going to take a while, as these companies get their heads around going a step further in measuring outcomes,” Dagbo said. “That is one of the biggest pieces of work asset managers can do in trying to get better clarity and better meas- urability of social outcomes.”
Let’s work together To reduce, or even eradicate, inequality will need more inves- tors working to produce better social outcomes in their portfo- lios. For Jessica Attard, there is no single way to persuade more investors to adopt such a strategy. It needs the support of sev- eral actors in the investment world.
Asset owners can play a key role in encouraging those entrust- ed to invest their capital to be “bold” on social issues, especial- ly when engaging with corporates. “Number one is to encour- age asset managers to prioritise health and social issues more broadly within their stewardship approach and ensuring that their sustainability teams have the resource to do it in a mean- ingful way.
“There is a role for data providers, and, of course, regulators,” Attard added. “We have all seen examples of where British American Tobacco has ended up at the top of the Sustainabili- ty Index. That can be for no other reason than health metrics were not considered, which is an enormous omission. “But this is commonplace,” she added. “We are trying to en- gage with data providers to think about how they incorporate health within their indexes.” Finally, there is the regulator. “We want to work with regulators to ensure companies are encouraged to improve their report- ing on health and social issues. We want to strengthen legisla- tion in that area,” Attard said.
“The rules and incentives that drive the behaviour of investors need to be geared in the right direction to enable support and reward investors who do the right thing and incorporate social factors into that stewardship approach,” she added.
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