Social issues

Introduction

For a few reasons, investors tend to give social issues – the S in ESG – less attention than environmental issues.

Social issues are often personal, political and difficult to measure. The relationship between social issues, risk-adjusted returns and fiduciary responsibilities is unclear.

Social issues are often interpreted as minimum standards (avoiding the most egregious social issues in investment portfolios), rather than investment objectives.

And low wage, low skilled, low rights workforces are often a feature of a company’s profitability. In this briefing paper, we set out a few steps investors should take to integrate social issues in investment processes.

The SDGs as a starting point …

The 17 UN Sustainable Development Goals, agreed by governments in 2015, provide a useful starting point for investors considering their approach to social issues.

While considerable overlap, example social issues include:

Social Issues Strategy

A 10-point plan

Start with a literature review, for example:

Just Business by John Ruggie
The Truth About Modern Slavery, by Emily Kenway
Impact, by Sir Ronald Cohen

Consider the evidence base, for example:

Applying Economics - Not Gut Feel - To ESG, by Alex Edmans
Why and how investors should act on human rights, by PRI

Develop and publish your investment beliefs, for example:

Commitment to UN Sustainable Development Goals
Compliance with the UN Guiding Principles on Business and Human Rights

Understand relevant regulation and regulatory initiatives, for example:

Principal Adverse Indicator disclosures for SFDR
DWP social issues taskforce

Establish portfolio company objectives and how the objectives affect systemic risks, for example:

A retail company pays staff a living wage, to address rising inequality
A mining company strengthens commitment to indigenous people’s land rights, to address systematic breaches of human rights

Identify actions, including source data, investment integration, engagement and voting, for example:

Social issues data sets, such as World Benchmarking Alliance, as well as financial data sets
Updating internal models to include management of social risks in company valuations
Starting own engagement
In addition, joining collaborative engagements, such as ADVANCE

Establish a timeline with milestones:

Be prepared to engage for the long-term. An engagement with a mining company may take several years
Not all engagement is successful, not all companies respond, some companies may have already taken action, but for reasons of their choosing, decided not to disclose
Consider escalation activities, including use of shareholder resolutions and voting
Consider participating in industry working groups

Engage clients on approach

Seek feedback.
Adjust strategy as necessary.

Assess contribution to investment thesis. Track financial performance. Consider social issues in relation to other financial issues.

Establish reporting, for example:

Progress against milestones
Narrative-based case-studies
In person events

And continue and repeat … while milestones and actions may be time limited, a social issues strategy is likely to be ongoing …

Focus on human rights

Here, we provide a deeper dive on human rights. We have ready-to-go briefings, data and engagements available across a range of social issues. The UN defines human rights as rights we have simply because we exist as human beings – they are not granted by any state. In 1948, the UN General Assembly adopted the Universal Declaration of Human Rights. “These universal rights are inherent to us all, regardless of nationality, sex, national or ethnic origin, color, religion, language, or any other status. They range from the most fundamental – the right to life – to those that make life worth living, such as the rights to food, education, work, health, and liberty”. However, the idea that companies might have human rights’ responsibilities independent of legal requirements is still relatively new. In 2011, John Ruggie, influential academic, lawyer and policymaker, established a set of principles, unanimously endorsed by the UN Human Rights Council, known as the UN Guiding Principles on Business and Human Rights, or “GPs” for short.

The GPs establish the role of states and companies in how economic activities affect human rights.

There are three pillars:

The role of the state to protect against human rights abuse
The corporate responsibility to respect human rights, to avoid human rights abuse, and to address adverse human rights impacts
Remedy, such that those who are victims of human rights abuses caused by company activity can seek appropriate compensation

While most companies with complex or at-risk supply chains will have human rights policies in place, the depth of commitment, and extent of implementation, can vary considerably – as can the response to breaches of human rights.

Why work with Canbury

Canbury was created with a vision to make sustainability meaningful.

Drawing on a unique blend of financial and sustainability experience, we partner with investors, companies and NGOs to develop investment industry guidance, to undertake thematic research and to interpret financial regulation.

We believe that:

The best data comes from the people that understand it -companies and NGOs.
To make meaningful decisions, sustainability data needs to be considered alongside financial data.

Our deep dive approach allows our clients to focus on the issues that matter and the companies that matter.

Our highest priority engagements are where the investment:

Has sustainability concerns identified through our data.
Represents a significant part of the investment portfolio.
Has provided strong portfolio performance.

We provide our clients with a full service of sustainability support – from source data through to client reporting.

Get in touch to find out more.

Social Issues