NEI's Focus Report for 2021 includes the issue of inequality, and firm's ESG expert says corporations must now walk the walk not just talk the talk
Inequality has, sadly, been a theme of recent times. From the resurgence in the Black Lives Matters movement – sparked by police killings – to the disproportionate effect of the pandemic, pay disparities and access to vaccines, inequality is everywhere.
For NEI, this has formed a key part of its Focus List 2021, its guide to ESG themes and the companies it will talk to this year. The investment company prides itself of going beyond screening, actively engaging many of the companies it owns in its funds to push for more sustainable behaviour.
Its three core themes for 2021 are human rights, inequality and energy transition, with the report exploring sub-themes within these categories. The report also highlights key companies it will be talking to about certain issues. The companies in focus for inequality include Amazon, Walmart, AstraZeneca and Canada’s “big 5” banks.
Michela Gregory, director, ESG Services at NEI, said these firms were chosen because they are well-known players in the industry and could help move any or all of the issues at hand.
She added: “Sometimes the theme is core to a discussion because we think that there is a lot of room for improvement within a company, and we're trying to use and leverage our influence as a shareholder to push for growth, progress and betterment on any or all of the issues.
“[The report] is also meant to provide the reader with a sense of how we think about responsible investment, what we consider systemic issues, how we see interconnection between the issues and provide a framework that will help outline priorities for discussions with companies.”
A cynic might question how much impact this can actually have when dealing with behemoths like Amazon, and Gregory admitted it’s not a simple task. Some firms, for example, have their own process of grappling with these issues and progress can take time.
But that doesn’t prevent NEI from pushing the agenda and recognizing that, as an investor, it has the potential to bring a strong voice to the table, particularly as an advocate for companies to consider broader stakeholder opinions.
Gregory said: “We may have dialogues with companies that we've been engaging with for a year on different issues, and so that definitely [creates] room to influence a company because we’ve had the opportunity to develop a rapport with them. Other times, it really involves working with other like-minded investors, gathering together through collaborative engagements to raise a collective voice to advance the discussion on any of the issues that we've outlined on the focus list.”
Within the inequality section, the issue has been broken down into four areas: human capital, equitable compensation, diversity and inclusion, and equitable access. Gregory believes there is a real need to hold corporations accountable to ensure they are not only talking the talk but also walking the walk.
The pandemic has brought about robust discussions around all of these, including fair wages for essential workers, the summer protests around Black Lives Matter and the distribution of COVID-19 vaccines.
She said: “Within the context of equitable access, we think about that across sectors in very different ways but to use healthcare and the pharmaceutical sector as an example, we’ve now realized, through the pandemic, that the health of each of us is interconnected and affects the health of all of us.
“We've long since considered access to health care and medicine to be a core part of our responsible investment approach, but even more so during the pandemic we've really been engaged in discussions about what equitable access to COVID-19 vaccines and treatments should look like for sustained global recovery.”
In terms of increasing dialogue and seeing results, the response from companies differ, with many at different stages of how they think about inequality issues. But Gregory said that, after 2020, there is a heightened willingness among firms to engage, and she hopes recent global events will provide them with a sense of urgency that has often previously been lacking.
Gregory said: “Each company is driven by its employees, so your employees are an important stakeholder that will ultimately determine the success of your business in a sustainable way that's geared towards long-term value creation.
“Many of the ESG issues have direct implications in a financial sense. If we think about inequality, we're thinking about human capital, so what is the reputational risk that comes into play? If a company is seen to be contributing to or lacking action with respect to fostering a more inclusive workspace, these issues can really affect the bottom line.
“It can do so in a number of different ways but the discussion then is how to respond and what constitutes an adequate response."
