Research also suggests that investee companies that voluntarily integrate ESG policies into their business model may outperform their peers in terms of return on assets (ROA) and stock performance. 7 Firms that strive to achieve better social outcomes, such as income equity, may win stakeholder trust. A Dutch pension fund studied this issue and found that 70% of its investors were in favor of expanded engagement with companies on job quality and other ESG issues-even if it meant reduced profitability and investment returns. 6 Investment management firms that integrate ESG issues, such as job quality, in their investment decision processes could also generate higher investor interest. 5 The increase in margins, while at the same time increasing the number of employees, can most likely be attributed to engaged employees being more productive and providing better service. 4 According to research, a one-standard-deviation increase in labor levels at a major bookstore increased profit margins by 10% over the course of a year. These long-term gains may help investment management firms and their investee companies win stakeholder trust and generate long-term financial benefits for investors and companies alike.īetter working conditions and improved wages may lead to more innovation and employee loyalty over the long term. However, allocating more resources to the workforce should not be viewed as a short-term cost but rather an investment to help firms realize long-term gains. While ESG-mandated funds can influence actions that reduce income inequity gaps at investee companies, some proposed measures-such as higher wages, pay equity, and better working conditions-require additional expenditures and would reduce margins in the short term. What’s in it for investment management firms and their investee companies? Let’s take a closer look at how ESG actions to reduce income inequity can benefit investment managers and help reduce income inequity. 2 However, investment managers with an ESG mandate focusing specially on social and governance issues have the potential to reverse this trend.Įffective capital allocation, targeted guidance, and directions from investment managers of ESG-mandated funds-assets that are forecasted to constitute 58.2% of total global professionally managed assets by 2025-can propel actions that help reduce the income inequity gap globally. 1 Globally, three to four years of work on reducing extreme poverty has been lost because of the pandemic. Can ESG investing help improve pay equity? Can ESG investing increase employees’ access to sick leave, insurance, and other employment benefits? Can ESG investing really help reduce gender based pay discrimination? The COVID-19 pandemic exacerbated the income inequity situation as it impacted lower income groups to a greater degree than higher income groups.
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