The A-Z of ESG: Social
COP26 update:
- Over half of the UK’s largest businesses have pledged to stop their contributions to climate change by 2050, becoming signatories of the UN’s Race to Zero campaign.1
- More than 40 countries pledged to phase out coal-based power by the 2030s for bigger economies and the 2040s for smaller economies. Investments will be made in clean energy.2
- Research indicates that global heating could be kept to 1.9C if commitments on greenhouse gas emissions are fulfilled.3
We continue our look at each part of ESG, focusing today on the ‘S’ for social.
See here for ‘E’ for environmental.
Relationships matter. As social creatures, how we are treated, whether we feel valued and how connected we are to others are vital parts of a healthy and satisfying life, as well as underpinning many human rights. The ‘S’ of social criteria examines how a company manages relationships with employees, suppliers, customers, and the communities where it operates.
For responsible investors, it’s important to know about how a company treats people. However, the social aspect of investing has often been the most overlooked. This is because it is harder to define and measure than environmental and governance aspects.4 This is changing. The pandemic highlighted the vulnerabilities of so many people to their working conditions, with major outbreaks in workplaces such as construction sites, abattoirs and factories.5 The spotlight moved to how employers protect their employees, and in doing so, keep their businesses functioning.
Markets have tended to reward companies that have a good understanding of the risks to people and seek to address them – after all, unhappy workers result in a higher chance of strikes, high staff turnover or reduced quality products and customer service.
Below a certain threshold, social aspects of investment are about basic dignity and rights to people, but it also has the potential to be about individuals and communities thriving and developing; the very essence of humanity.
Key questions include:
Is the pay for employees fair and are human rights respected?
Are matters of equality and diversity addressed?
Does it contribute to the community?
Are suppliers given a fair price?
Social criteria
Key factors include:
- Good health and safety conditions
- Freedom of expression for employees
- Diversity and equality
- Treatment of local communities
- Paid leave and fair pay
- Fair treatment of suppliers
- Child labour and modern slavery issues.
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Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.
1 COP26: Half of the UK’s largest businesses pledge to net zero by 2050 – Energy Live News
2 More than 40 countries agree to phase out coal-fired power | Cop26 | The Guardian
3 Cop26 live: world ‘heading for 1.9C of heating’, climate model projects (msn.com)