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‘Do the right thing’: Pandemic puts workers’ rights on ethical investor hitlist

A woman holds up her fist in a protective glove from a car during a driving caravan demonstration in midtown Manhattan organized by the New York-based 'Workers Justice Project', protesting for rights of essential immigrant workers in the State of New York during the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., April 21, 2020. (REUTERS/Mike Segar - RC279G918T8M)

BY SARAH SHEARMAN, THOMAS REUTERS FOUNDATION

From paid sick leave to protective gear for staff, the coronavirus crisis has pushed workers’ rights up the list of priorities for companies and individuals looking to invest ethically, experts say.

With millions more job losses expected and the world heading towards a deep recession as countries shut down to stop the spread of the new coronavirus, the way companies treat workers is under scrutiny.

“Now more than ever (companies) are in the spotlight,” said Hortense Bioy, a research director at financial services firm Morningstar. “That is when you are going to see the true leaders, the ones that are delivering, and those that are not.”

Ethical investment, which weighs up companies’ commitment to environmental, social and governance (ESG) issues, from carbon emissions to supply chain transparency, has become one of the fastest growing areas of finance in recent years.

But it has tended to focus on environmental performance because of the pressing, long-term risks posed by climate change.

Analysts say that is starting to change.

“The ‘S’ (in ESG) – which was kind of a bit forgotten, or not considered as important as the ‘E’ – now it’s emerging as an important dimension in this crisis,” said Bioy.

This month a group of 286 investors representing more than $8.2 trillion in assets issued a statement urging firms to provide paid leave, prioritise health and safety, limit exposure to the virus and retain jobs.

“Investors should be asking tough questions,” said Simon Rawson, director of corporate engagement at ShareAction, a British charity that promotes responsible investing and was among the signatories to the statement.

“It is essential that companies have good oversight of their workers, especially the most vulnerable.”

RESILIENT

Early analysis indicates that companies with strong ESG records and the funds that invest in them are fairing better in the market turmoil caused by the crisis.

In Britain, the average ESG fund fell 14% in March compared to 16.8% for their non-ESG rivals, research from Morningstar has found.

This is partly because these funds tend to be less exposed to sectors badly hit by the crisis, such as oil companies or airlines.

But Bioy said it was also because companies with high ESG scores tended to be run well, treat their stakeholders well and have fewer controversies, making them more resilient to market downturns.

Many companies have taken steps to protect jobs by deferring shareholder payouts or cutting executive pay, while others have changed their business models to help in the fight against coronavirus, such as manufacturing protective equipment.

There have also been myriad reports of companies failing to prioritise employees’ health, encouraging them to come to work unnecessarily or firing staff.

Unions in developing countries that manufacture and export to wealthier Western nations have warned that the pandemic could lead to a rollback in labour rights improvements as stores close and sales fall.

ShareAction’s Rawson said companies needed to be more transparent in their treatment of supply chain workers as well as staff.

“We need to define afresh what responsible investing looks like for social issues like decent work and public health,” he said.

When the Workforce Disclosure Initiative (WDI), founded by ShareAction and backed by more than 130 investors managing $14 trillion in assets, approached 750 major companies for a recent survey on this, just 15% responded.

Yet the pressure from investors is there, according to Fiona O’Neill, deputy head of research in equities at investment firm Fidelity International, who predicted the coronavirus crisis would boost existing momentum behind ESG.

She said many companies would need to raise capital because of the current challenges and potential investors would expect them to prove their commitment to ESG as well as show they had robust financial plans in place.

“In the short term it might cost more,” said O’Neill. “But long-term, they reap the rewards of that by having more loyal staff, by customers wanting to shop with them.”

 

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