While often referred to as the ‘soft’ part of ESG investing, Ausbil believes that if a business relies on underpaid workers, slavery, or weak regulation on social issues, their earnings will unlikely be sustainable.
Following the passage of the Modern Slavery Act in the House of Representatives, which introduces reporting requirements for businesses on the risk of slavery in their operations and supply chains, Ausbil has released a paper discussing some of the implications for investors.
“The importance of issues such as labour rights and other human rights, including modern slavery, is closely linked with Ausbil’s investment philosophy. Ausbil believes earnings revisions drive share prices and we prefer companies with sustainable earnings and quality management,” said Ausbil head of ESG research, Mans Carlsson-Sweeny.
“At the heart of it, if a business model relies on underpaid workers, or even slavery, or weak regulation on social issues, current earnings will unlikely be sustainable. Also, brand damage can lead to loss of sales.
“However, it is not all about earnings. We see ESG as a proxy for management quality. When a company does not know its own supply chain or does not understand the risks of slavery, it begs the question: what else should we worry about?”
Carlsson-Sweeny also pointed out that damaged brands can be costly and damaged brands can be costly and time-consuming to restore, while also having internal impacts, such as staff engagement and distraction for management and the board.
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