OUTSIDE THE BOX
The coronavirus pandemic is shaping the future of work. Flexible schedules, working from home, gig economy jobs and digital transformation might not have needed special prodding from a ruthless virus, but COVID-19 has accelerated and, arguably, concretized certain trends, namely:
These pandemic-related factors and responses will change how we conduct business - and how we live our lives. With great change comes both financial risks and opportunities, which companies will need to balance against their societal obligations. If we begin with the premise that the lasting value of an investment is ultimately driven by the relationship between and among stakeholders - including directors, investors, customers, suppliers, the environment, society, regulators and of course, employees - the long-term viability of an investment requires decision-makers to understand and balance the needs of these diverse groups.
Seen through this lens, employee considerations become a vital input when it comes to Environmental, Social, and Governance (ESG). Applications related to ESG integration include avoiding companies that have such poor relations with employees that they are unproductive (or even strike), resulting in material reduction in revenues and increased costs. More holistically, it means gaining a sense of which companies view their employees as assets rather than budget line-items. Which businesses are providing training to equip staff for the future of work, paying a living wage that ensures adequate living standards, and being mindful of company culture and work-life balance considerations?
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Though the focus on these issues appears to have intensified during the pandemic, these social factors tend to be less well-understood by investors due to the lack of access to transparent, high-quality data or disclosures around these issues. As economies emerge from COVID-19, it will also be important to consider the altered macroeconomic backdrop, including increased levels of government spending and debt and associated opportunities for the structural reform of national labor markets - all of which will be instrumental in shaping our working lives.
That said, active engagement with companies can go a long way toward better understanding and/or influencing corporate culture and identifying areas where a business's future of work lags behind the times. The recent growth of ESG and sustainable assets has been accompanied by a rise in active engagement, perhaps most notably in the form of proxy voting, with investors increasingly voting against management.
Change is inevitable. One's partners, clients, staff, future employees and shareholders demand businesses to embrace it. Given the arrival of effective vaccines, as we ultimately emerge from the pandemic, companies and sectors that rigidly adhere to the old ways of working will do so at their peril. Our lived experience tells us daily: The future of work is here. It's an essential part of the "S" in ESG, and the investment implications of ignoring this new reality are not small.
Andrew Parry is head of sustainable investment at Newton Investment Management
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