At a focus group held last summer, clients commented that they wanted more social justice issues taken into account in the way their investments are managed. Responsible and ethical investment, although dynamic, is on the whole mature, and has long experience of integrating environmental and governance risk into the way investment decisions are made and portfolios constructed. Integrating social risk has been slower and still has some way to go, but we were struck by the accelerating appetite by clients to see it given more prominent exposure.
Why should this be? Well by and large, the E and G of ESG (environmental, social and governance) tend to be measurable. Core data allows trends and direction of travel to be observed over time and improvements targeted.
One only has to think of climate change (greenhouse gas emissions and targets to reduce), diversity (gender targets and statistics), or core resource issues such as energy, water and waste, to see that these are all quantifiable and can therefore be measured and then targeted. Investment managers comfortable with numbers may shy away from embracing softer issues that seem more subjective or emotional such as precarious employment, predatory lending or tax justice.
This would seem to be a missed opportunity on the part of the investment community. Many of the 167,000 registered charities in England & Wales, raising in excess of £73bn a year, work resourcefully in the social justice space, be this in poverty alleviation, economic development or fighting social ills such as domestic violence and substance addiction. We can therefore see why charities may want to align their social mission and purpose with the way their money is invested.
How can a responsible investment manager support charity clients in furthering their social justice mandates? EdenTree’s Amity funds apply core negative screens, excluding areas of the market that charities with a social purpose may want to avoid such as alcohol, tobacco, gambling, armaments and pornography. Going beyond simple avoidance, we then apply nine positive pillars that screen companies affirmatively based on their corporate responsibility credentials. This is articulated as six areas of business risk (business ethics, community, corporate governance, employment and labour, environmental management, and human rights), and three market themes that have strong social utility for charities – education, urban regeneration, and health and wellbeing.
The process seeks to invest in companies strongly represented in the education sector, believing this to be a strong proxy for social mobility, poverty alleviation and female empowerment. Investments in urban regeneration have a preference for social and affordable housing in areas of need, student accommodation or brownfield re-development. Investments such as the Hightown Housing Association fixed interest bond provide affordable housing in areas of need in the northern Home Counties, as well as having a vital interest in providing housing, care and support for vulnerable adults, teenagers and victims of domestic violence.
Another area in which social justice can be manifested through a responsible investment approach is in the area of precarious employment. Charities are increasingly working in areas where people are impacted and affected by precarious work, zero-hours contracts and the gig economy.
This is a relatively new phenomenon, in which normal worker rights tend to be absent, throwing people into ever more vulnerable forms of employment. In the UK, over 900,000 people are affected by precarious employment through zero-hours contracts, according to the Office for National Statistics, and we believe the trend may well continue unless government acts. The business case is clear and is linked to the eighth UN Sustainable Development Goal of inclusive and sustainable economic growth, employment and decent work for all. We therefore support the government review of precarious work being carried out by Matthew Taylor, RSA chief executive, who has already said “stressful work with low levels of flexibility and autonomy is a critical factor leading to hundreds of thousands of workers dropping out of employment every year.” This is particularly manifested in lower-paid areas of the market such as hospitality, care and social work. In a recent CIPD survey, 60 per cent of men and 57 per cent of women said that overall they did not get enough work on a regular basis working in the gig economy.
The wider care sector is particularly susceptible to poverty in work syndrome where 43 per cent of care workers in England reportedly earn less than the statutory national living wage, rising to 75 per cent in the north east. Overall, according to the Resolution Foundation, five million are employed at levels lower than two thirds of the median hourly wage of £8.25. While the national living wage has lifted many out of relative poverty, around 20 per cent of the workforce in the UK is still defined as low paid, with women making up 61 per cent of the total.
The future of work
Part of our response in supporting client concerns for ‘social justice’ has been to publish The Future of Work. This brings together research and thinking on what should be an appropriate investor response surrounding employment pressures. It makes a strong case for supporting take-up of the voluntary living wage (set at a premium to statutory minimum wage and national living wage standards and with no age discrimination). It references long-standing work engaging with companies and encouraging them applying the living wage across UK operations.
Since 2011, over a third of the FTSE100 – the UK’s largest listed companies – have become accredited living wage employers, up from zero. They recognise that this helps to motivate and retain people, by providing an income based on what is needed for people to live, rather than what the market can afford.
The Future of Work also addresses two other issues of pressing concern for charities; incidences of modern slavery and human trafficking, and improving corporate diversity. Human rights is a core criterion for inclusion in the Amity funds and supports the UN Universal Declaration of Human Rights and effective application of the UN Guiding Principles of Protect, Respect and Remedy for businesses. Ultimately, we may exclude companies from investment under our human rights pillar where there is strong complicity or prevalence of human rights violations.
In promoting and encouraging diversity we have been particularly active: supporting voluntary targets set by the Davies Committee of 25 per cent of women on boards by 2015, and subsequently the Hampton-Alexander target of 33 per cent female representation by 2020 across the FTSE350. Each year we engage strategically with laggards, and will vote against all male boards or those where progress has stalled, integrating diversity fully into our proxy voting policies and process.
The world of work is at something of a crossroads and addressing some of the challenges in a labour market where there is unequal, insecure and unpredictable employment has been a core part of integrating social justice concerns into the responsible investment process. Qualitative information on human capital issues remains poor, which is why we are also supporting a new investor coalition, the Workforce Disclosure Initiative. This will target a growing universe of companies to disclose more information on company direct workforce and the supply chain.
Charities working with some of the most vulnerable in areas of acute need fund managers in tune with their values who responsibly engage with business. Responsible investment is not an added extra, but core to how charities deliver on their long-term objectives.
Neville White is head of SRI policy & research at EdenTree
Charity Finance wishes to thank EdenTree for its support with this article