In our previous articles we discussed how climate change and cyber security/data privacy are two important material environmental, social and governance (ESG) factors that can impact the risk levels and potential returns of a given investment. Another ESG factor that is particularly critical in today’s market and economic landscape, especially considering COVID-19, is employee health and safety.
There is truth to the saying that a company is only as good as its people. How an organization manages its employees can be a source of long-term material strength or weakness, which will ultimately impact investors.
Why employee management is an investment issue
How a company recruits, retains and develops its workforce can be one of the most important determinants of its future performance and can serve as a source of material investment risk and/or future opportunity, particularly in the COVID-19 era. Employee management can impact a company’s performance in the following ways:
- Competitive advantage: In many industries and geographic regions, qualified workers may be in short supply. Employers that can better attract, retain and develop employees are in a better position to outperform.
- Legal/regulatory compliance: Companies that engage in poor or unlawful labour practices risk prosecution, financial losses, poor performance and/or reputational and brand damage.
- Organizational resilience: Companies that are already leaders in employee health and safety can be better positioned for any future global shock events (e.g., a possible future wave of COVID-19) that may impact them and their industries.
- Health and safety: Unhealthy or dangerous working conditions present a critical risk to employees. The COVID-19 pandemic has focused considerable attention on employee health and safety, especially in industries in which unsafe conditions for frontline workers could have severe consequences.
Factors such as workplace culture and employee morale are not always easily quantifiable. But they can definitely affect the long-term success of a business. Investors and issuers alike will continue to be paying closer attention to these intangible factors in the future.
Melanie Adams, , V.P. & Head, Corporate Governance & Responsible Investment, RBC Global Asset Management
Employee management and ESG investing in action
Employee issues can vary greatly according to industry and region. However, the types of disclosure asset managers seek from company management teams generally fall within these themes1:
- Labour practices: Do the company’s policies and practices facilitate good working relationships with its labour force? This can include financial compensation, compliance with laws and regulations and general employee satisfaction. This theme can extend beyond the direct employees of the company to the labour force embedded in its supply chain (e.g., the employees of an external supplier or contractor).
- Health and safety: Do working conditions preserve employee well-being and minimize the chance of on-the-job health and safety incidents? Such concerns have become more pronounced in the COVID-19 era, in which a company’s policies on social distancing, protective equipment and general sanitation can prevent the highly infectious coronavirus from spreading within its labour force and to the general public.
- Employee engagement and development: Can the company not only hire talent, but develop it further to meet the company’s future needs and facilitate its growth? ESG disclosure might include the effectiveness of the company’s policies and practices to improve employee engagement, productivity, innovation and retention. Company culture and commitment to diversity can also be key engagement factors.
- Response to COVID-19: How did the company act during the initial outbreak of COVID-19? How is it continuing to respond to the health and safety challenges of the pandemic? Investors have become increasingly focused on how companies have responded to COVID-19, from the working conditions for frontline workers to facilitating remote working when possible, applying ethically and strategically sound labour force rightsizing policies and promoting a company-wide culture of commitment to health and safety.
- Quality of leadership: The commitment of a company’s senior management and board directors to fostering a company culture that places paramount importance on health and safety has always been important but has come under greater scrutiny recently. Safeguarding the welfare of employees at all times means an organization is better able to weather unexpected events and can recover from them faster.
Employee management aligned to company performance
Companies that engage in effective management of employees set themselves up for potentially enhanced productivity, innovation and, ultimately, business results. All of these positive effects will eventually flow to investors, which is why RBC GAM makes employee management a cornerstone of its ESG engagement.
For additional perspectives on RBC GAM’s ESG-driven investing, see our previous articles on climate change and cyber security/data privacy. For more information about RBC GAM and ESG engagement, visit https://www.rbcgam.com/ri.
1 Developed based on research from MSCI ESG Ratings Methodology and SASB Materiality Map and industry reports.
This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes, as of the date noted only. It is not intended to provide professional advice and such information should not be relied upon as such. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.