Funds Europe – For the past two or three years, fund managers have been saying the ‘S’ in ESG will increase in significance and become more impactful. Do you think that the social aspect of ESG is increasing?
Powdrill – Within ESG, it is climate that is the biggest topic – the ‘E’ – followed by governance. The ‘S’ is still a long way behind, but it certainly received more prominence during Covid because of, for example, social distancing. Social distancing was an issue that could put people’s lives at risk if companies did not get it right.
The gig economy was another point that many investors have been interested in and the extent to which that kind of employment relationship is acceptable in its own right and any risks associated with it. You can see with Uber and Lyft that any change in public policy or law in relation to employment sends the share price up or down quite dramatically. Those kinds of topics have definitely become a much bigger deal. But I still feel it’s easier to get into an ESG portfolio if you’re weak on the ‘S’ than if you’re weak on the ‘E’.
Harper – It’s all about data and being able to track what actually takes place against various metrics. In the case of social metrics, these can include contrasting CEO pay with staff pay or looking at the diversity of boards and monitoring how this changes over time. Our job in the industry is to figure out a better, faster, more efficient way to get that information into the decision tree at asset managers and on the buy-side, so that people can balance their portfolio around the stakeholder capitalism element.
Piffaut – It’s quite important to differentiate between business models and business practices. In ESG, the two get quite confused by those who do not understand the distinctions, and that’s part of the reason why tech ends up being in many ESG portfolios. This is a bit of a bugbear because the tech industry has a huge impact on society, yet it doesn’t manage its risks well.
If you take social media platforms, we all know there are big risks that exist within content management. Facebook’s number of users is beyond any country’s population size, so the company’s management and the board have more to do with more people’s lives than even a government; that gives you the scale of the impact on society. But it’s a lot easier for investors to engage with companies on environmental reasons because of how we’ve been able to quantify it within the scope of carbon emissions.