Pandemic brings ESG factors to the fore

The pandemic has strengthened the role of responsible investing and, as a result, both investors and companies will face greater scrutiny over their environmental, social and governance (ESG) credentials, according to the study by First Sentier Investors.

The events of 2020 created a number of challenges for investors, companies and communities but, at the same time, opened up a number of opportunities to create a sustainable and positive change by diverting investors attention on environmentally and socially significant issues such as:

• Climate change and biodiversity;
• Human rights and modern slavery; and
• Workplace diversity and mental health

One of the areas fundamentally changed by the pandemic, identified in the report, was the workplace health, given that organisations were forced to make major decisions about how to protect the physical health of their people by sending them to work from home.

Additionally, 2020 highlighted the importance of diversity, a process brought to the fore in part by the Black Lives Matter movement in the US and which was later replicated in other countries. Another important factor largely contributing to the workplace health was a gender diversity on boards.

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As far as human rights and modern slavery was concern, the report found that the risks significantly increased as millions of people were thrown into poverty and unemployment due to the pandemic.

“There are several intersecting trends that have increased modern slavery risks. One is the growing number of vulnerable people, thanks to ongoing lockdowns and high unemployment all over the world,” Kate Turner, First Sentier Investors’ Responsible Investment Specialist and lead author of the paper, said.

Another issue is that some factories and warehouses face high demand and tight production times, making unsafe and unfair working conditions more likely. It’s something that should be on the minds of all investors when looking at supply chains.”

First Sentier Investors, which believes that investors could play a bigger role, said it wrote to 27 companies across the healthcare supplies and apparel industries to ask how they were addressing modern slavery issues amidst the pandemic to spark conversations with many of them.

Further to that, the paper also outlined how unprecedented lockdowns had impacted energy demand, and the flow-on effects to the infrastructure sector.

“For example, in the United States, the reduction in demand squeezed high-cost-to-serve technologies out of the market, evidenced by the 20% reduction in demand for coal-generated electricity. Conversely, as renewables capacity was added, demand for renewable energy is estimated to have increased by 15% during 2020,” the report found.

“With attention focused on environmentally and socially significant issues, including climate change, biodiversity, human rights, mental health and diversity, we now have a chance to redouble our efforts to create long lasting, sustainable positive change,” Turner said.