Friday 25 September 2020 10:32 am Apater Capital Talk

Anything to declare? The ‘S’ of ESG makes its move

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City A.M. contributor

The central component of the increasingly prominent ‘ESG’ – the ‘S’ – is typically neglected in discussions about environmental, social and governance (ESG) data and non-financial disclosure.

But developments such as the Boohoo garment workers controversy and Black Lives Matter movement, as well as the trends such as gender pay-gap reporting – not to mention the coronavirus pandemic – mean that an increasing number of investors are keen to scrutinise more closely whether big companies have a good or bad story to tell (or hide) when it comes to ‘S’.

One route for companies seeking to engage with the ‘S’ agenda is the Workforce Disclosure Initiative (WDI), which aims to boost corporate transparency and accountability on workforce issues; provide companies and investors with comprehensive and comparable data; and – ultimately – ‘help increase the provision of good jobs worldwide’.

Investor coalition to drive uptake

Managed by campaign group ShareAction and part-funded by the government, the WDI is supported by an investor coalition of 49 institutions with about £5 trillion in assets under management. Now in its fourth year, it is modelled on the CDP, the global environmental disclosure system founded two decades ago as the Carbon Disclosure Project.

The WDI team and investor supporters have been busy in recent weeks writing to 750 companies to encourage them to participate in initiative’s most visible output: an annual survey and scorecard that takes in 13 workforce topics ranging from diversity and training to whistle-blowing and sourcing procedures. 

118 companies took part last year (the smallest, by market capitalisation, being Jupiter Fund Management, Scottish energy firm John Wood Group and bakery chain Greggs) – up from 90 participant companies in 2018 and 34 in 2017. 

The survey has been revised for 2020: the number of questions has been cut from 152 to 125; and companies that have taken part before can pre-populate their submission with previous responses. 

‘Sustainable investing is here to stay’

Among the investors on board is BMO Global Asset Management. Last year the investment company urged 77 companies to complete the survey and 17 did so. Reasons given for partial or no responses included: a lack of data; a lack of resources to complete the survey; and other reports being given greater priority.  

Nina Roth, a director in BMO Global Asset Management’s responsible investment team, is optimistic that engagement will increase. “The ‘S’ has been seen as the least important element of ‘ESG’ but I think that’s a huge mistake,” she tells City AM. “It has become clear through the pandemic that sustainable investing is here to stay, and for proper investment analysis enhanced social disclosure is key.” 

‘Sustainability context has changed’

Sustainability reporting fatigue is an acknowledged challenge. The WDI is piling in alongside more established schemes such as the Netherlands-headquartered Global Reporting Initiative and the London-based Ethical Trading Initiative.

The most recent of the GRI’s reporting frameworks are its GRI Standards, which launched in 2016 and help companies disclose their impact on the economy, environment and society. Many of the WDI questions closely align with the GRI Standards, which are used by more than 10,000 companies worldwide for sustainability reporting.

Bastian Buck, GRI’s chief of standards, agrees that ‘S’ is on the rise. He tells City AM:  “As the wider effects of the pandemic have become more apparent, demand for companies to disclose their impacts on social factors has grown – from employee health and wellbeing through to community engagement. This is because the sustainability context in which they operate, and the associated risks, has changed.”

The Ethical Trading Initiative (ETI), meanwhile, works with companies, trade unions and NGOs to drive up standards in supply-chains in accordance with an ethical code. ETI executive director Peter McAllister describes the ‘S’ in ESG as “the weakest leg of what is a three-legged stool” and welcomes the WDI, which he sees as complementary to the ETI’s aims. “Anything that increases corporate transparency is good,” he tells City AM.
“We have seen scandal after scandal when it comes to how workers, sometimes far away and sometimes nearby, are treated. Investors essentially carry this risk in their portfolio and need to know what’s going on in supply-chains, or suffer the consequences. Being better informed about endemic risk, demanding evidence of due diligence and asking the right questions, is good for investors, good for business and good for workers,” McAllister adds.  

‘Fundamental belief in corporate transparency’

Reckitt Benckiser (RB) is among the multinational companies to participate in the WDI. 

Head of external communications Peter Edwards leads on the consumer goods company’s engagement, co-ordinating the involvement and input from departments ranging from sustainability and compliance to HR.

Practically, Edwards sets aside a certain number of days to collect and input data for the WDI’s survey, which RB has completed for the past two years. At present he is in the early stages of data collection for this year’s submission.

“There are many initiatives like the WDI. But we do it because we have a fundamental belief in corporate transparency,” he tells City AM. “The scorecard helps investors and potential partners better understand us. Each year our WDI score spurs support from senior management as to how we can improve involvement next time.”

This year’s deadline for companies to submit data is 16 November.
“Throughout the pandemic, there has been lots of talk about how companies are treating workers,” says WDI programme lead James Coldwell. “The Workforce Disclosure Initiative is an opportunity for those companies and their investors to demonstrate how they value their workforce, in a way that goes beyond warm words of support.”