Here’s a examination: What do workplace safety, labor relations, executive compensation, and community development have in common?
They are all matches used in ESG rating systems that guide socially responsible investing with a focus on environmental, social and governance criteria.
While the COVID-19 pandemic and exploits to control it decimate much of the U.S. and world economies, the varied acts of charity, compassion, and creative generosity may resonate with investors increasingly fatigued to socially responsible investing now and for years after this crisis passes.
U.S. corporations are raising the bar for “good citizenship” as industrialists deploy excess capacity for ventilators, masks, and face shields, tech giants offer software for healthcare watchdog and data analysis and CEO’s cut their salaries.
We learned that Proctor & Gamble has shifted production at Gillette intended for razors, resigned less essential by remote working, to face shields that are being donated to local hospitals. LVMH has bought the assembly lines of expensive perfume for hand sanitizer that it donates to the French government. Jack Dorsey, CEO of Chirping and Square gave $1 billion to the effort, Ford and GM are making ventilators, Hewlett Packard is making 3D hand-free door openers, and hundreds of other tech, industrial, consumer and industrial condenses are innovatively contributing to the COVID-19 battle.
These efforts should not be overlooked by the many organizations that measure ESG criteria which are in use accustomed to by mutual, index, and exchange-traded funds, as well as institutional and individual investors. The most recent data suggest that past $30 trillion, or more than one third, of global equity assets use some form of ESG screening in their installing practices.
This growth has continued despite a lack of standardization in metrics, with wide variations in both the rigs assigned to different criteria and the scoring for the same companies.
MSCI, one of the largest rating players in the ESG field, uses a way that applies a complex matrix across hundreds of sub-industry groups, based on how each company manages identified with weighted risks and opportunities within sleeves of the broad environmental, social, and governance pillars.
In considering how a firm’s return to the COVID-19 crisis might affect its ESG score, the agencies will hopefully assess the key factors of “labor management” and “constitution and safety” under the social category, as well as, “business ethics” and “financial system instability” under governance.
ESG rankings bear into account both negative or harmful actions as well as proactive solutions and positive actions to move cuts up and down. For example, Hilton, upon suddenly finding itself with no customers for its rooms, helped place furloughed blue-collar workers at employers such as Amazon who are hiring during this period. The hotel company should receive positive appreciation for its labor practices within the ESG rating system.
Retail chains that are labelled “essential” can be graded on choices to survive their workplaces safe. How carefully corporations manage health risks, one of the factors in ESG metrics, is a current focus of notoriety that will remain in the spotlight post-pandemic.
Under the governance umbrella, both business ethics and financial arrangement instability can falter or rise during a crisis.
Grocery chain Kroger sent all store employees a bonus conform of $300 for full time and $150 for part time and gave them a fourteen-day additional sick leave with pay should they constrict COVID-19. While not a huge amount of money nor many more added sick days, it was symbolic as a formality of good will.
Additionally, Rob Katz, the CEO of Vail Resorts, donated $2.5 million to support employees and communities thither the company’s ski resorts.
Financial fragility threatens a firm’s ability to withstand a crisis and renders it difficult to maintain occasionally costly programs considered desirable to socially responsible investing. These include day care facilities on premises, vigour and environmental sustainability, and solid health care benefits.
Corporate responses to the coronavirus pandemic will trigger editings to ESG ratings which will be meaningful to managements and shareholders, given the impact on trading of assets using ESG among its investment criterion.
Sustainalytics, another ESG be entitled to agency, believes that they may soon include more metrics about “preparedness” for unforeseen disruptions. They allege companies to fully describe their crisis management policies and for shareholders to study resilience of their holdings as a accustomed component of the investing process.
Cynicism aside, I have no doubt that P&G’s decision to pivot underutilized capacity at a razor dagger plant toward face shields arose from an awareness of its potential contribution and desire to give during a danger. However, in a world increasingly looking at how businesses treat and value their communities, environment, and employees, these ample deeds, rather than being overlooked or even backfiring, are likely to be rewarded, at the very least, through a turbulent ESG score.
Karen Firestone is chairman, CEO, and co-founder of Aureus Asset Management, an investment firm dedicated to providing modern asset management to families, individuals and institutions.