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Tackling inequality through ESG and active ownership

Tackling inequality through ESG and active ownership
Tackling inequality through ESG and active ownership

Investors’ thinking around environmental, social and governance (ESG) considerations tends to follow a particular pecking order. Governance, which to some degree influences the other two elements, usually comes first. Environmental, especially in light of the existential threat posed by phenomena such as climate change, normally comes second. Social, which covers how organizations interact with a broad range of stakeholders, more often than not brings up the rear.

This hierarchy might not alter dramatically anytime soon, but today the S of ESG is undoubtedly earning more attention. The COVID-19 pandemic has further crystallized the importance of the greater good, posing new and highly pertinent questions about entities’ relationships with clients, employees, suppliers, communities and, crucially, society in general.

In addition, the case of George Floyd, the African-American man who died during a police arrest in Minneapolis, Minnesota, has re-exposed what has been called “the pandemic within the pandemic”: inequality. It has challenged the notion, supposedly forged during the fight against the virus, that humanity is a collective that strives to find shared solutions to shared problems.

Is it possible to frame inequality – and even racism – in ESG terms? Yes, because every organization can promote social policies and practices that recognize such issues. Investors have a potentially enormous part to play in bringing about the desired transformation, given their ability to allocate capital responsibly and to exercise the power of active ownership in pursuing outcomes whose benefits extend far beyond the bottom line.

In this paper we examine how ESG integration can help tackle inequities and imbalances that have existed for decades and which have been thrown into sharp focus by the extraordinary events of recent months. We reflect on the growing chasm between “haves” and “have-nots”; we explain how fiduciary duty links to the fundamental idea of doing the right thing; and we outline the roles of data, direct engagement and dialogue in shaping equality-aware investment decisions.

We should stress that we do not intend for this to be any kind of political treatise. Nor do we pretend for an instant that asset managers should be looked upon as the world’s moral and ethical guardians. Our purpose is simply to explore how investors can contribute to the cause of positive, lasting change in the face and wake of unprecedented and all-pervading societal upheaval.

Learn more in our in-depth assessment.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested

Important information

  • Data as at 31.07.2020, unless otherwise stated. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.