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AIQ Editorial TeamGlobal Investment Thinking @avivainvestors
The impact of poor corporate behaviour on society has been one of the great blind spots of the financial industry, despite evidence of the damage done. We look at how investors should approach socially-responsible investing.
The financial sector has only recently begun to accept the risk that climate change poses to investments. However, we are even further away from acknowledging the long-lasting damage and destabilising effects of social inequality. It is simply not efficient or healthy to have large sections of the population in working poverty, lacking access to basic resources or routinely denied their rights at work. A just social transition must ensure businesses and the financial sector are held accountable for any negative impacts of their actions on society.
Investors and companies have a part to play in making this happen. When companies and financial institutions treat their people poorly, there is little to compel them to improve their behaviour. Regulation is tightening, but investors should not wait for lawmakers to act.
Investors should assess whether companies have a robust approach to human rights
Investors should assess whether companies have a robust approach to human rights, provide decent work, and act as good corporate citizens, including paying their fair share of tax. By conducting detailed research into whether a company’s actions are harming society and what it is doing to prevent or remedy any negative impact, investors can make more informed choices.
For instance, we do not consider investing in companies that have clearly breached important international standards and norms. We focus on identifying companies that already behave well and encourage them to go further. In addition, we target companies that help people to access basic resources and services – for example, in education, healthcare and finance. These are very exciting areas from an investment perspective.
COVID-19 has served as a timely reminder of companies’ varying attitudes towards people. Those that treat staff well, have strong supply chains, and enjoy good relationships with regulators and governments are typically weathering the pandemic better than the laggards.
No company is perfect. Every company has areas that it needs to improve
Interacting with companies about their behaviour and how it can be improved is vital. It allows investors to assess the willingness of management to make the right decisions for the long term. But no company is perfect. Every business has areas that it needs to improve, and by talking to these companies it is possible to highlight our concerns. Ultimately, if poor-performing businesses do not make progress, investors must be prepared to sell-up and divest.
Three points to remember
- Companies that behave responsibly in terms of how they treat their staff and customers, and how they manage their interactions with wider society, can also perform well financially
- The COVID-19 pandemic has highlighted companies that behave responsibly – and those that don’t
- We target companies that behave well and engage with their management to encourage further improvement. We avoid companies that do not act responsibly and will withdraw investments in companies that refuse to address our concerns
