The majority of analysts have tipped there will be a higher focus on social issues in the recovery from the COVID-19 economic and health crisis, as ESG rises in prominence, new research from Fidelity has found.
According to a pulse survey of analysts from Fidelity International, most global respondents have reported the majority of companies are now considering ESG factors, in contrast to last year when more than 20 per cent were seen to not give weight to it at all.
Efforts around implementation and communication of ESG policies had increased over the last year across all regions covered by the survey, including China, Japan, the broader Asia Pacific and North America.
The research has also tipped a recovery from the COVID pandemic that is mindful of ESG issues.
At least 45 per cent of analysts said there would be a greater focus on social issues following COVID in the US and Japan – in other regions, the percentage was higher. Three-quarters (75 per cent) of analysts in EMEA/Latin America agreed, along with 63 per cent in the Asia Pacific excluding China and Japan.
Jenn Hui-Tan, global head of stewardship and sustainable investing said the COVID crisis had shown a need for companies to pivot in purpose, from purely generating profit and shareholder returns towards serving the needs of all stakeholders.
“What the pandemic has done, is bring that social purpose into very sharp relief. And so, it has accelerated the focus on this factor whereas previously the focus on ESG had been on climate change and on corporate governance,” he said.
There are different ways for investors to measure the “S factor”, or the social aspect of ESG, including data around employee engagement, producer responsibility (how suppliers are treated) and product responsibility (how consumers are treated).
“It’s also becoming increasingly clear and there are numerous examples that we now see in the market, that the risk of brand damage to a company, the reputational damage of failing to pay attention to the S factor, can be very damaging to the share price of a company, to the management and its ability to operate,” Mr Hui-Tan said.
Research from Fidelity had previously shown that companies that rated higher in ESG ratings outperformed their peers through the COVID crisis.
The assessment has been updated, extended for nine months, with Fidelity coming to the same conclusions again.
“The value of ESG ratings as a way to indicate companies that are better managed, more focused on longer-term sustainability factors – this is going to be something that will be valuable to managers that are seeking alpha, not just this year or next year but through a longer period of time as well,” Mr Hui-Tan said.
He signalled his own team will be focused next year on active engagement with companies on supply chain and labour issues, digital ethics (issues arising from algorithms and data security) and climate change and loss of biodiversity.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].