Why has social lost its lustre for ESG investors?
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Why has social lost its lustre for ESG investors?

Last year, social was top of the ESG agenda. Today, it barely merits a mention.


Whatever happened to social? Barely a year ago, the S of ESG – environmental, social and governance – was top of the agenda, sparking hopes that its days as the poor relation of the trio were over.

Bankers and asset managers hailed the “rise of social”. The pandemic and the Black Lives Matter movement, so the story went, had awakened companies and investors to the inequalities and injustices of society, and prompted them to take action.

In Euromoney’s ESG outlook for 2021, social was the first topic raised by most of the industry experts surveyed. A year later, it barely merited a mention.

Clearly social issues and inequality have not disappeared, or indeed notably improved, in that time. So why the dramatic change of heart?


There are several possible answers. One is that the focus on social was a fad that fitted the mood of the moment, a bandwagon that companies and investors jumped on and then abandoned again as they remembered that solving the world’s social problems was a thankless and financially unrewarding task.

That could also explain the renewed focus on climate, which now once again dominates ESG discussions. The risks of global warming are more obvious and the opportunities from financing the energy transition much greater.

A less cynical explanation would be that, as vaccines mitigated the worst effects of the pandemic, the climate crisis naturally came to the fore again. Social inequality is an issue as old as humanity. Global warming is not.

As last year’s report by the UN's Intergovernmental Panel on Climate Change (IPCC) made clear, climate change is the biggest threat the world is facing, and urgent action is needed to avert it.

While investors’ appetite for driving social change may have waned, there is a heightened awareness of social risks

Digesting a raft of new climate regulation, grappling with the implications of net-zero commitments and preparing for the COP26 climate conference has understandably left companies and asset managers with little ESG bandwidth for social issues.

Does this mean that social is a lost cause? Not entirely. While it may no longer be making headlines, and investors’ appetite for driving social change may have waned, there is a heightened awareness of social risks.

Tight labour markets and footloose workforces have forced firms and investors to focus on employee wellbeing, fuelled unionization in the US, and heightened the risk of regulation in areas such as the gig economy.

International outrage over China’s treatment of its Uighur minority and concomitant pressure on companies operating in or sourcing products from the Xinjiang region have ensured that human rights remain a live issue.

Meanwhile, the Boohoo scandal of 2020 serves as a timely reminder that modern slavery is not confined to the developing world, and an illustration of the dangers of ignoring the reputational risk of violating social norms.

Social has not disappeared from the ESG agenda – but perhaps it would be fair to say that it has resumed its rightful place in it. There is, after all, only so much that companies and asset managers can do to address inequality and injustice. The rest is, and should be, the job of voters and politicians.

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