Responsible Investment Officer - ACTIAM
As with previous crises, inequality in the world has increased as a result of the COVID-19 pandemic. According to the ILO, the pandemic has resulted in a $ 3.7 trillion loss of income for the global workforce, equivalent to 255 million full-time jobs lost.
The pandemic has also exposed inequalities within countries, particularly affecting the low-skilled, ethnic minorities and young adults. Also, the pandemic has clearly demonstrated that many of the essential services we rely on are run by individuals with weak forms of worker protection. The European Commission's announcement to introduce a social taxonomy as well, which will define what is expected of companies in how they treat both their employees and the society in which they operate, has therefore become even more important.
Increasingly, investors are monitoring how companies they invest in ensure basic rights for the society, such as protecting human rights and preventing child labour.
However, as well as this ethical baseline and meeting legal requirements, it is important to raise workers' living standards in real terms. On the one hand because this is how companies and investors will comply with international treaties and guidelines such as the UN Guiding Principles on Business and Human Rights (UNGPs) and, on the other hand, because they face less financial risk this way, since the likelihood of protests and staff turnover is reduced. Employee satisfaction and health are also improved when, for example, a living wage is paid or employees have access to good healthcare. This promotes productivity and resilience within the chain.
In contrast to information about how companies deal with the environment, there is still limited reporting on this social impact. Because there is no standardised way to make this impact transparent, the announcement to expand the taxonomy to include social themes is indeed a step in the right direction.
“There is still a lot to be crystallised before investors can use the social taxonomy to drive improvements in social impact.”
The announcement has nevertheless already raised a few eyebrows, though. For example, on behalf of Dutch investors, Eumedion has asked the Commission how to deal with the link between social and other sustainability factors, for example when addressing climate issues is accompanied in practice by a negative social impact - or vice versa.
In addition, as with the green taxonomy, the question is how "hard" the European Commission's indicators will be for actually differentiating among companies whose social impact is positive. Finally, the question arises of how to deal with cultural differences between countries in which companies operate.
Thus, there is still a lot to be crystallised before investors can use the social taxonomy to drive improvements in social impact. This makes it all the more important for investors to identify the social impact of each company. Although traditionally we often look at the negative impact that undesirable social behaviour can have on the valuation of a company, there will increasingly also be companies that are able to distinguish themselves in a positive way and thus, for example, tap into new markets and win the 'war on talent' in terms of a human resource policy.
It is interesting to follow closely the roll-out of the social taxonomy, but also to make an active contribution to it.
Translating these developments and data into customer service is therefore high on my agenda!