Time to evolve ESG analysis – Mona ShahPublished on 12 Aug 2020
Combine data types to reveal true picture
In recent years, stories of corporate America have tended towards the negative, including Big Tech’s weaknesses around privacy and data or anticompetitive practices. The months since the Covid-19 pandemic, though, have highlighted technology’s many positives – tackling loneliness, enabling medical appointments during lockdown, making it possible to work from home or even propping up healthcare systems.
A number of companies have also shown themselves to have bigger hearts than investors had previously credited them with. It is just one of many surprises the crisis has revealed about businesses.
Before the pandemic, there was a mass of ESG data available. While the crisis has done nothing to reduce that, investors have started to look at different ways of rating the actions of companies and build up a fuller, more nuanced picture of what responsibility means.
For the Stonehage Fleming Global Sustainable Portfolios (GSIP), our approach has always been to be open-minded. Starting with the premise that things are rarely black and white, we afford companies a degree of latitude vis à vis their ESG ratings. We look at where they are today, versus what measures they have in place to improve. We also take the view that statistics are only half the picture and that a company’s actions should be just as interesting as data to responsible investors.
Over the course of the pandemic, independent non-profit research group, Just Capital, collected a slew of information about the United States’ 100 largest companies and their social impact responses to Covid-19.
According to the data, 45% of companies voluntarily closed their branches to maintain social distancing before the law required them to. Another 27% furloughed employees or provided voluntary leave at low or no pay. A third provided financial assistance to their employees in the form of wage increases, bonuses and grants. This spirit of social responsibility is striking, given the cultural differences in the US’s approach to a welfare state than, say, the UK.
In the wake of the significant job losses in the US, it has been important to see where management teams have been prepared to share the pain. 27% of company management teams took pay cuts at executive level. Having laid off over 100,000 workers, the chairman of Disney gave up his pay for the year while the CEO took a 50% cut.
Another finding saw almost half of US companies providing community services. This has taken the form of food banks, blood drives, software provision to schools for online learning and donating IT and telecoms hardware, like T-Mobile who donated 40,000 phone chargers to hospitals.
These statistics from Just Capital reveal new, post-pandemic behaviours in companies and are very important to investors. It is important to remember though that there are many less easily quantified actions taken by companies. Investors must look beyond the figures and combine real-time conversations with management with more qualitative analysis.
Take the UK gaming industry, for example. It launched a ‘Games for Carers’ initiative offering a free game or subscription to thank frontline NHS staff for their work though the Covid-19 crisis. It also united to promote the UK government’s ‘Stay Home, Save Lives’ messaging on popular video games and console dashboards.
The previous example is a collaboration that some may find unlikely. But it is this sort of surprise that teaches us a valuable lesson: ESG investing is evolving. By incorporating new and different types of information into our analysis we can consider it within the wider context of a business’ performance. Only then can we build up a more meaningful picture of companies’ ESG credentials.
Mona Shah is a Director in the Investment Strategy & Research team of Stonehage Fleming Investment Management.
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*Source: COVID-19 Corporate Response Tracker, Just Capital, 2020