What are the Current Key Social Factors that Drive ESG Investments?

 

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Introduction

Investments in the spectrum of Environmental, Social and Governance (ESG) have drawn assets in an increasing projection each year. Even during the beginning of the impact of COVID-19 pandemic, we had seen sustainable fund flows were resilient. In Quarter 1 2020, the sustainable fund had amounted to over USD 45 billion versus to outflow of over USD 380 billion for the global fund universe.

ESG funds saw loss in capitals during market selloff, just like many other non-ESG funds, however in comparison, ESG funds did not suffer loss as severe in the broader market where they had shown better performance on a relative basis.  

Similar with for index funds, we had seen over the majority of sustainable index funds ranging from developed and emerging market stocks had outperformed the comparable conventional index fund.

Similar outcomes were shown during Quarter 2 2020 where most sustainable funds outperformed conventional index funds covering the same market landscape.

 

Social Matters are on the Rise

One of the major issues due to the pandemic was it has caused and will continue to cause millions of people to be left unemployed. Apart from job security, the concerns on workplace matters have begun to be scrutinised further from the public and authorities. This includes issues on health and safety, work flexibilities and employee management.

The investors are also getting more serious on social issues. According to a survey on ESG, the interest on social issues had increased 20 percentage points since the start of COVID-19. To add, almost 80% of the survey respondents in the opinion that social considerations as contributing to positive impact on long-term investment performance as well as risk management.

Many corporate leaders nowadays are aware that more and more young investors have the preference to focus on ESG investing and the trend is also seen in female investors. Most financial institutions worldwide also observe this trend and have constantly notice the urgent need to equip the institutions with social sustainability emphasis as clients have started to ask questions on the matter.

 

Lack of Social Metrices

In comparison to the Environmental and Governance aspects, the Social aspect and the inadequacy of its metrices have not been given the same amount of attention. This resulted in the ineffectiveness for financial advisors to advise and guide clients to create portfolios to include a wide range of material social considerations.

Many reporting companies disclose a lot of its Environmental and Governance data, but Social data is still in the area where it requires more regulations in driving its more robust publications particularly for data that may affect the company’s reputation such as turnover rate.

Internally, there should be greater awareness of social issues that could potentially drive the initiatives to identify the relevant metrics to measure and report on, starting from the basic to a more complex sets of social data.

However, the unavailability of certain social data should not be the considered as the failure of a company to manage its social issues well. Some may already have sustainability-related mandates to support employees as well as having robust policies on labour rights, diversity and health and safety.

 

Conclusion

There is the current and ongoing trend of investors seeking long-term ESG investments, including from the Social aspect as these investors are driven by their own values while gaining long-term profit. However, more and more investors are demanding better avenue and data to attest the value creation from investments that consider Social material issues.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

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The Overview of How the COVID-19 Pandemic is Changing Supply Chain Management

                                 Photo courtesy of Pexels, for illustration purposes only

 

Introduction

Environmental, Social and Governance (ESG) risks poses threats to companies worldwide to drive globalization ambition to a more shared value and interconnected society and partnerships. This is not exclusive to certain companies or certain sectors, as what we are witnessing from the shocking effects from COVID-19 pandemic is that ESG risks are extensive across borders or even from the domestic landscape.

Impact on Trade and Investment

As vividly observed from lockdown measures across the world, local and global investment and trade are severely impacted and hurting most of companies supply chains and causes uncertainty of how the new norm and current measures taken are capable of ensuring supply chains are fluid as before the pandemic and could remain profitable – or even still operational.

Certainly this will contribute to the decline in global direct investment (FDI) in the following year, as well as decline in global mergers and acquisitions as these are linked to how resistant to which restrictive measures become binding and supply chains being relocated to home markets.

It is highly talked about these days that ESG risks are inter-related and so are the impacts. Thus, various professionals are advocating that the ways companies react to the COVID-19 pandemic impact shouldn’t be a ‘one-off’ approach as companies need to anticipate of other ESG risks such as climate change that will pose similar or greater impact.

The process of placing of restrictions and screening on investment and trade before the pandemic was justified based on the concerns of being solely dependent on a foreign company for supplies for goods and services and also the encouragement to local expertise and technology to be kept within the borders for security, surveillance or sabotage mitigation approaches.

This will soon be obsolete and will change fast. ESG risks will now add a different layer of filtering dimension to the beforementioned concerns that will change the global investment and trade flows. 

Companies Need to Transform

Normal ways of supply chain management are not deemed capable anymore to ensure robust business continuity.

Business models from companies are now changing. The global supply disruptions and restrictions have required companies to transform the very fundamentals to the value chain as a whole by remodeling business strategies and resilience capacity across operations. Companies now are diversifying their lines of production by also expanding the reach of secured and credible value chain across borders to ensure operational supplies are not interrupted.

Companies are also looking to implement structural changes by improving investment in technology and innovative solutions due to the demand of the present pandemic circumstances as well as a part to ensure business efficiency.

These are just gist of the transformation required but companies’ Boards and management need to realise that the value chain management transformation requires a more complex approach to ensure the change in supply chain management would be profitable and sustainable in the long term.

Focus on Domestic Suppliers

The supply disruptions due to COVID-19 cause companies to be looking inward towards suppliers within the border to secure readiness, availability and cost efficient (in some cases) supplies for operations. But how does this affect local businesses?

The government and regulators play the key role in the need to enhance and communicate the existing policies towards empowering local businesses to reach the capacity and capability to meet demands in the market, investment and trade.

Governments and regulators, and even private firms need to come together to re-strategise on approaches to ensure local business resilience through dynamic supply chain management. One of the ways this can be achieved is by investing and advocating in technological and innovative solutions. Certain sectors are less affected whilst dealing with the pandemic such as the energy sector that have certainly been paving ways for innovative thinking and solutions to mitigate the current pandemic crisis.

Local businesses also in need of support towards developing enhanced business models as well as diversification portfolios. This emphasis should extend to other sectors such as health and medical industries, technology as well as food producers.

The need to rethink on the critical goods and services for domestic production should be increased to meet market demands.

Focusing on market presence and reputation by local suppliers should be driven diligently. Their goods and services should be competitive and aligned with national and international standards to stand out as the suitable or better alternative to the market.

Conclusion

Companies need to transform to adapt and sustain in this new business environment that has majorly impacted the traditional global supply chain management. Securing sustainable supplies for operational business continuity should be one of the forefront agendas for companies in dealing with the new norm from COVID-19 pandemic, but also other unprecedented ESG risks in the future.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

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