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How are Blue Monday and ESG related?

21/01/2019

In the UK, the third Monday of January has been designated as Blue Monday. With Christmas and New Year festivities forgotten, work pressures renewed, the Beast from the East threatening to return and vitamin D levels running low, there are both physiological and psychological reasons why today is supposedly the most depressing day of the year.

The dialogue around mental health issues has improved dramatically in recent decades, but action to tackle them through public health measures or company policies is still lacking. And as with all public health predicaments, there is an associated financial cost. The City Mental Health Alliance has estimated that mental illness is costing City employers alone £100m a year as long hours and job insecurity cause undue stress. This is based on sufferers being absent from work more often and less productive when they are present.

ESG analysis in investing often includes health and wellbeing factors, but these tend to focus on physical rather than mental health. It is easier to assess the health and safety measures implemented along a supply chain than it is to ascertain whether a) members of staff are chronically stressed or unhappy and b) to what degree the company is contributing to or alleviating their suffering.

Julia Dreblow, founder of sriServices and Fund EcoMarket, suggests that while fund managers have not been conducting explicitly happiness-focused research, “Mental health is increasingly rising up the corporate agenda, and therefore the investment agenda.”

She adds: “Motivations will vary, but at its most basic level employees who are happy in their jobs are likely to be more productive and take less time off through ill health. Companies with ‘happier’ employees will also benefit from better staff retention and – all other factors being equal – find it easier to attract new staff.”

A quick search on the FundEcoMarket research tool brings up strategies from several fund managers that consider health and wellbeing policies. Julia explains, “In practice, this means they will favour companies with sound employment practices and companies that provide products intended to make us healthier and happier.”

We asked an ethical researcher at a wealth management firm how close they really get to looking at mental health. While difficult to measure directly, she comments that many proxy indicators exist, such as turnover rate, absence rate, employee satisfaction, evidence of stress management/wellbeing programmes and policies on flexible working. So some relevant data will be available (and probably in more comprehensive form from larger companies), but “it’s definitely more art than science”!

There are some big FTSE players that do – at least outwardly – appear to be promoting mental wellbeing. A number of ESG gurus we’ve spoken with recently highlight Fundsmith favourite Unilever for committing to its vast Sustainable Living Plan. In addition to various measures aimed at employee welfare at Unilever HQ and along the supply chain, the company has set itself many external-facing goals. Its health and wellbeing ones are centred on fundamentals like improving access to safe drinking water and hygiene products, but notably include Dove Self-Esteem programmes for young people. Unilever has also pioneered body image-positive ad campaigns for women and ‘anti-stereotyping’ campaigns aimed at men.

British economist Richard Layard would approve. Regarded as one of the first happiness economists, his current focus is mental illness prevention and the positive impact this would have on society and the economy. For those with the stomach for academic pontificating and number crunching, his paper on measuring wellbeing gives some useful steers on how life satisfaction and emotional state can be gauged.

To end this Blue Monday blog on a cheerful note, companies are starting to take note of mental wellbeing in the workplace. And the more ESG analysts and portfolio managers push the issue, the greater the pressure will be for companies to up their game. If more data on wellbeing is expected to placate investors, there will be a clearer picture of issues and greater opportunity to address them. More measuring means less suffering in silence.

Perceptions, worries and fears around responsible investing will all revealed in detail in our upcoming Responsible Investing Review, of course, available in spring 2019. We have spoken in-depth to over 60 experts on the issue, including private investors, financial advisers, discretionary fund managers, and more, and have consulted over 1400 stakeholders through quantitative means.

The first issue is due for publication in spring 2019 and will include insight from all angles:

*Surveys measuring appeal, preferences and take-up among professional and private investors

*Deep-dive commentary from industry experts, including fund ratings agencies, fund buyers, fund managers and stewardship specialists

*Analysis of ESG/responsible assets, flows and performance

*Comprehensive review of government regulation and trade association guidance supporting the growth of ESG investing

*Findings-led predictions on the growth potential for responsible investing

To express an interest in becoming a stakeholder in this ground-breaking report, please contact Toby Finden-Crofts (email or call 0207 104 2236) or Richard Ley (email or call 0207 104 2239).

Research in Finance is uniquely placed to produce such a report. We have access to each audience via our own proprietary panels.

(Only 10 delegate spaces remain at the breakfast briefing)

Subscribing firms will receive 2x report copies, soft copy for internal use, plus the opportunity for two of your team to attend a breakfast briefing where RiF will present some key findings at their London HQ – space at this briefing is limited after a successful launch phase.

NEW – Subscribing firms can take the option to place a 1000 word content piece in the participant report which is distributed to all respondents – plus available to members of the RiF Panel.

 

Does responsible investing mean having to sacrifice returns?

14/01/2019

Researching the area of responsible investing has been encouraging in no small part because of the significantly increased interest and appetite in rewarding actors and players that are contributing to the world positively, whether this is done by addressing their gender pay gap or taking steps to mitigate the effects of climate change.

However, we were also interested in what makes a compelling argument for scepticism (or downright opposition!) to integrating sustainability or ESG criteria in investment. At first glance, concerns around underperformance remain, with some in the investment world viewing the concept as more of a charitable initiative rather than a way to boost returns. With Apple’s recent profit warning sending tech stocks tumbling (and tech stocks are heavily relied upon by a not insignificant number of responsibly or sustainably minded funds), it is perhaps more understandable than ever that some would worry that ethical and/or sustainable approaches do not make financial sense.

Then there is also the Norwegian state pension fund (the world’s largest sovereign wealth fund, no less), which ‘missed out’ on 1.9 percentage points on the return on its benchmark compared to the performance it would have had, had it chosen to continue to invest in tobacco and armament companies. The other side of the story of course is that excluding companies deemed to have breached human rights or caused significant environmental damage, such as US-based retail giant Walmart, have also boosted the fund’s return – albeit only by 0.8%.

Of course, there is no standardised definition of ESG, SRI, or related terms such as sustainable investing, and variations in the investment process mean measuring the performance of funds that incorporate ESG or similar principles can be challenging. Corporate behaviour and responsibility is of course multi-dimensional, which does not make things easier.

Other critics maintain that at times clients wanting to invest in a more responsible way by excluding particular sectors or integrating particular principles into their investing end up in costlier funds that are not too dissimilar from your run-of-the-mill index fund.

Having said that, sceptics overlooking sustainable or ethical stocks because they don’t think they will perform well means that these are more likely to be undervalued and found by bargain seeking investors.

And finally, there is what we think is the strongest argument in favour of companies with a lot of ESG momentum performing outstandingly well – the large and ever-expanding body of research (both academic and not!) demonstrating ties between long-term corporate performance and ESG criteria filtering into the investment process. Empirical evidence linking lower risks and a boost in returns to environmental social governance screening has consistently been produced over the last few years, although there have also been studies that have concluded that knowledge around the topic remains fragmented.

There is no doubt that both sides of the debate have their own vocal proponents, but of course this is simply the roundup of the press around the issue – we’ll get right back to analysing what private investors, intermediaries, and asset managers think about the ethics vs performance dilemma! Perceptions, worries and fears around responsible investing will all revealed in detail in our upcoming Responsible Investing Review, of course, available in spring 2019. We have spoken in-depth to over 60 experts on the issue, including private investors, financial advisers, discretionary fund managers, and more, and have consulted over 1400 stakeholders through quantitative means.

The first issue is due for publication in spring 2019 and will include insight from all angles:

• Surveys measuring appeal, preferences and take-up among professional and private investors
• Deep-dive commentary from industry experts, including fund ratings agencies, fund buyers, fund managers and stewardship specialists
• Analysis of ESG/responsible assets, flows and performance
• Comprehensive review of government regulation and trade association guidance supporting the growth of ESG investing
• Findings-led predictions on the growth potential for responsible investing

To express an interest in becoming a stakeholder in this ground-breaking report, please contact Toby Finden-Crofts (email or call 0207 104 2236) or Richard Ley (email or call 0207 104 2239).

Research in Finance is uniquely placed to produce such a report. We have access to each audience via our own proprietary panels.

(Only 10 delegate spaces remain at the breakfast briefing)

Subscribing firms will receive 2x report copies, soft copy for internal use, plus the opportunity for two of your team to attend a breakfast briefing where RiF will present some key findings at their London HQ – space at this briefing is limited after a successful launch phase.

NEW – Subscribing firms can take the option to place a 1000 word content piece in the participant report which is distributed to all respondents – plus available to members of the RiF Panel.

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