Crises are litmus tests for all sorts of activities and behavioural traits. When businesses and individuals find themselves under pressure their true colours often shine through – these colours are their values that manifest as priorities. I wrote last week about fear and how fear can present as action, inaction or even denial. This piece is intrinsically linked to this concept, to the role of values in both our professional and personal lives and whether those values are grounded in negative belief systems (greed, selfishness) or positive (love, community).
Over the last few weeks we have witnessed a wide range of corporate responses globally. Some retailers have pivoted and repurposed their businesses as ‘critical hygiene’ companies, extending their supply chains to make ventilators, hand sanitiser, personal protective equipment and more, ultimately showcasing their values as businesses and their acute understanding of the role they can play in society at large. Unfortunately, we’ve also seen others far less benevolent and impactful activities. This crisis is affording us a ‘warts and all’ view of businesses as we’ve never seen them before. As we continue to come through this crisis we will see more good, and more bad
So how does one navigate this often very fluid landscape, where the needs of society and the needs of the planet are shifting on an almost daily basis?
Impact investing, by its very nature, takes a long term view – patient capital deployed into the businesses and solutions that can drive us towards a place where everyone and everything can thrive.
It is often grounded in theories of change, where investments are anchored into a metanarrative of outcomes and outputs. There is an argument to say, therefore, that it can be less agile given the longer term commitments to change in which it is deeply rooted. However, when you embrace the notion that all investing is impactful, either negatively or positively, then there is a role for more short term investment activities that can deliver change alongside its longer term cousin.
It has become clear in this current crisis that the S in ESG has been lacking in many companies. Supply chains have either been squeezed or turned off completely, with no thought or regard for the human and economic cost (and ensuing environmental cost) at the other end. Millions of employees and contractors, at best may have been furloughed, at worst laid off. Many lower paid workers are in what is termed ‘in-work poverty’, so even where a furlough scheme exists, it isn’t enough to safeguard them as employees. With rising claims for unemployment in the US, for example, there is an economic timebomb that is ticking loudly. And yet, dividends by many are still being paid and senior management may still be reaping the rewards of six or in some cases seven figure pay cheques whilst those further down the line of management are asked to bear the brunt of any economic fallout. Is this fair? No. Does this afford a deep insight into the culture of the business? Yes. Can it be changed? Absolutely.
The small but powerful UK charity, ShareAction, a couple of months ago launched a campaign to recruit 100 individuals shareholders in Barclays who would support a resolution asking the bank to phase out its financing of fossil fuel companies that are active agents in driving the climate crisis. They partnered these 100 individual investors with 11 institutional investors managing over £130bn – including Brunel Pension Partnership, LGPS Central, Sarasin & Partners and Folksam Investors. The resolution will be voted on by investors at Barclays’ annual general meeting in May 2020.
This model of shareholder activism, whereby new individual shareholders are recruited to ensure resolutions are tabled, is likely to form the basis of many more interventions in the future. Given the work that ShareAction does, and that of many other activist charities and concerned consumer groups, we could start to see a raft of resolutions relating to the S and the G in ESG as we continue to move through this crisis, despite the move to virtual AGMs. Top floor to shop floor pay has always been a bone of contention between investors and businesses, as have supply chains and human rights.
As impact investors we are morally bound to ensure that the businesses we invest in are not those exhibiting and exposing shallowness in their mission and/or values.
Where errors in our collective judgements come to the fore, the investment community must act. And act we can, every day, through active engagement with the companies we invest in to ensure responses to crises are measured and fair. That any additional support that a business may need in a time of crisis will be forthcoming from its shareholders (for example, the suspension of dividends to allow a company to channel that capital back into the business). The recent Domini Impact Investments LLC convened letter to the market asking for responses to the coronavirus crisis to be people centric and fair is one way the community at large can leverage influence. The letter calls for five key areas of corporate behaviour to be addressed: 1. Providing paid leave; 2. Prioritising health and safety; 3. Maintaining employment; 4. Maintaining supplier/customer relationships; and 5. Demonstrating financial prudence: These apply in equal measure to us as investors too. There cannot be one rule for them and another for us.
This crisis may well yet witness the rise of the long-short activist hedge fund, alongside the more traditional investor, as yet another example of what the investment community can do to maintain confidence in the businesses exhibiting the behaviours and the solutions we need. Whilst simultaneously applying pressure on those who don’t. Being critically aware of the need to ensure any short strategy does not result in further pain for those individuals already feeling the economic fallout of COVID-19, we may see pressure being applied to executive teams, where capital reserves are plentiful, to ensure that the rights of both employees and suppliers are upheld and honoured. It’s not often we talk about moral imperatives and the hedge fund industry, but times are changing. Chris Hohn’s TCI (The Children’s Investment Fund Management) has already set a benchmark in the market regarding climate change inaction, thus setting a precedent and a template for others to follow, and other issues to be supported.
Impact investing may have found a new pathway for change and this pathway, if mindful and considered, could result in widescale change.
The landscape may be fluid at the moment, but by keeping a close eye on how companies are managing themselves through the lens of ESG during a crisis gives us a great insight into the culture of that company, and the depth of its self-reported mission and/or purpose. By navigating these responses, we are able to understand where we can continue to invest for longer term impact (taking into account the core product/service of that company) and where we might want to go to create immediate change. As an impact wealth manager, this is our job, but more than that, it’s our mission. It is in many ways the very articulation of the divestment movement.
As investors we have choices to either invest in the businesses causing the issues we face and use that power to try and create change, and/or to divest and move our capital to the solutions to the issues and help them thrive.
As a business, we do the latter. But it does not preclude us doing the former, should we choose. There is space for all approaches, as long as clear metrics are set.
In these times of crisis it is incumbent on us all to be flexible and agile to ensure the change that is required is supported by whatever means we have. As Arundhati Roy penned in the FT this past weekend “…the pandemic is a portal”. Not only a portal but a mirror. It has shown us all for who we truly are and has afforded us the opportunity as investors to look long and hard at what impact we think we’re creating and what impact we need to be creating.