The human toll that the Covid-19 pandemic is taking is tragic. But the indirect effects on people’s lives and livelihoods are also of crucial importance. And besides the most obvious issues of worker safety and wellbeing, the virus is raising some more fundamental concerns about human rights.
For investors concerned with environmental, social and governance (ESG) issues, these social implications are an important area of focus. Through engagement, investors can gain a greater understanding of how some of these labour and human rights issues may be affecting the businesses they are investing in. This dialogue also allows investors to gain insights into how successfully a company’s management is dealing with these challenges.
As ESG-focused investors, we at ASI have put these issues front and centre in our engagement with companies. Here we discuss them in some depth and provide some insights into our engagement during the crisis
Employee safety
For healthcare workers and other key employees exposed to the virus, access to appropriate personal protective equipment (PPE) is a vital concern – literally a matter of life and death. Meanwhile, the World Health Organisation (WHO) has warned that rising demand, panic buying and the hoarding and misuse of PPE are putting lives at risk. Clearly, there is a balance to be struck in ensuring Engaged investors have a role to play here in urging companies to implement working arrangements that put the safety of their staff first.
Treatment of staff and customers
As the crisis struck, some companies appeared to be to putting profits before the health and safety of their staff. There have been concerns about working conditions that make it impossible to comply with social-distancing requirements. And there have also been reports of companies terminating contracts unjustly, imposing unfair pay curtailments on employees or continuing to charge customers for services that they can no longer provide.
Obviously, ethically minded investors would wish to ensure their portfolio companies are considering these matters. Investors should promote the retention of employees and adherence to customer rights – and companies should be mindful of the reputational and operational risks that can arise here – as the recent example of Amazon shows. The company has faced strikes at its facility in Staten Island, New York, after a staff member tested positive for the coronavirus. Amazon has also had to agree to provide additional virus-containment measures in Italy after an 11-day strike by employees.
Benefits and healthcare provision
A global health crisis inevitably puts companies’ provision of employee benefits in the spotlight. In the US, around 11% of the population do not have health insurance. On top of this, approximately 25% of the workforce are not entitled to receive paid sick leave (although this has been somewhat mitigated by the First Coronavirus Response Act). These uninsured workers are predominantly in the service economy: restaurant, bar and retail employees. Many are on zero-hour contracts or otherwise working in the gig economy.
This situation presents an opportunity for companies to rethink benefits and provide better protection for employees. Already, some companies are temporarily extending their paid-leave policy to contractors and those on zero-hour contracts. For example, Microsoft is paying its contractors in full despite heavily reduced working hours.
Clearly, however, many businesses will be in difficult positions with regard to their employees. Companies can only be so generous before they risk going under – especially at a time when many are already at risk of collapse. We want companies to do the right thing by their employees, but we also need to recognise the challenges they face.
Job losses and staff redeployment
The effects of the pandemic on employment are likely to be stark. In the US, there have been more than 30 million jobless claims since the outbreak began, implying the highest unemployment rates since the Great Depression.
In the UK, there have been reports of major supermarkets hiring new staff and potentially pooling workforces to maintain public services during a period of high absenteeism.
Human rights
The ongoing lockdown in many countries has disproportionately hurt marginalised communities. This is because these communities are suffering higher levels of loss of livelihood and are more likely to lack food, shelter, adequate healthcare and other basic needs.
Businesses can help underserved populations that are suffering under the new restrictions imposed to fight the coronavirus
Businesses can help underserved populations that are suffering under the new restrictions imposed to fight the coronavirus. Already, a number of leading firms have introduced social initiatives. Adobe is offering free distance learning for schools until 31 May; Amazon and Microsoft have each pledged $2.5 million to help those affected by coronavirus in Seattle; Bank of America has pledged $100 million to help virus-afflicted communities worldwide; and Comcast, Verizon and Google have signed a pledge to keep people in the US connected to the internet for 60 days, even if they cannot afford to pay.
Questions of gender and social inequality are also important. The UN has stated that women are disproportionally affected by the Covid-19 crisis because, worldwide, they tend to be in more precarious financial positions as daily-wage earners, small-business owners or workers in informal sectors. Nor is the pandemic affecting all socio-economic classes equally. Instead, it has a disproportionate impact on people who live on lower incomes, who are less likely to be able to work from home.
Those who can easily work remotely will experience less economic disruption than those who have to choose between receiving an income or caring for children during school closures. This means that investors need to pay particular attention to measures taken by companies in sectors with high proportions of low-skilled workers.
Aiming high through engagement
Throughout the engagement process, the key is to balance the needs of the business with the desire to see it behaving responsibly towards its employees, customers and the wider community. Investors will need to assess the risks that each company is exposed to and tailor their engagement to each set of circumstances.
The following are just some of the questions that investors should be asking:
- What measures has the company taken to prevent the spread of the virus? What health and safety policies are in place?
- What are the near- and long-term implications of Covid-19 on your management of human capital and labour relations?
- What support is the business providing to its employees? What are the cost implications of these measures? What example is set at the C-level (e.g. foregoing salary)?
- How many key workers do you have in your workforce? How are they being compensated for extra shifts and longer hours?
- What provisions are in place for low skilled and vulnerable workers?
By asking such questions, ESG-focused investors can help to ensure that companies remain mindful of the broader interests of society at a time when they may be tempted to let such considerations slide. In the short term, such engagement can help to keep businesses to maintain their reputations and deliver a positive social impact. Over the longer term, it can help to make these businesses more sustainable – something that is, ultimately, in the interest of society, companies and investors alike.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
With thanks to the ASI Research Institute for their input into this article.