ESG Clarity sat down with Mary Jane McQuillen, portfolio manager and head of ESG at ClearBridge Investments, to talk about the growing interest in social issues in the investment industry and why diversity and inclusion remains front and centre, conversations with big tech and why healthcare will be an important social investment opportunity.
There is more awareness around social issues, but how is this being translated into action in the investment management industry?
Most recent conversations we’ve had with companies pertain to policies and practices supportive of diversity and inclusion among employees. We are seeing companies make progress on board diversity, the diversity pay gap, recruiting and retaining diverse talent, and in many cases just on diversity disclosure. Wages, working conditions and benefits are also key social issues.
At the same time, many companies are effecting positive social change outside the company. Helping fulfil the goal of inclusive capital, Bank of America recently announced a $1.5trn sustainable finance target, for example, of which $500m is focused on social inclusive development, scaling capital to advance community development, affordable housing, healthcare and education, in addition to racial and gender equality.
Illustrating the opportunity and obligation of healthcare companies to enhance health at a societal level, CVS has undertaken large-scale efforts to improve the health of underserved communities. Its hallmark programme, “Project Health,” offers in-store health screening to large numbers of people, largely ethnic minorities, in underserved communities, then helps connect those people with primary care providers and clinics. In what is both good business and social policy, CVS adapts stores to diverse community needs, tailoring its store assortment and staff to the ethnic makeup of local communities. The company emphasises hiring store managers, pharmacists and pharmacist technicians to align with local demographics and languages spoken.
What are the conversations you are having with big tech around social issues, and what actions are being taken?
We see a pattern of tech companies improving on social issues over time. An established tech leader like Microsoft provides a look at a gold standard for governance in that it is stakeholder-centric, responsible and transparent, and represents high and increasing diversity.
An example of an improving story, ClearBridge has engaged with Uber on labour issues since its IPO, and we have given feedback over that time to the CEO, CFO, chief legal officer and investor relations on labour relations as well as strategy and communications.
Recently, in the UK Uber proactively classified its drivers as workers ahead of final rulings from the British court system. The worker status in the UK is a designation between self-employed and employed status that entitles drivers to minimum wage, holiday pay and in some cases a pension. Uber’s agreement on this designation is ahead of other competitors in the market and the legal mandate represents a step forward in the company’s thinking about labour. The agreement represents a short-term hit to earnings, yet in some ways it places Uber ahead of the market in its ability to balance labour and shareholder interests. Workers benefit from improved conditions, with new contributions amounting to roughly 3% of a driver’s earnings, while Uber establishes more certainty on costs and visibility into its regulatory environment and operation conditions in the future.
Where do you see investment opportunities in the ‘S’ in ESG?
Improving health is a central theme for investment opportunities with social benefits, whether through drug innovation, addressing unmet medical needs, patient safety or effective healthcare coverage. On the managed care side, for example, UnitedHealth’s ability to improve health care outcomes and manage costs will be increasingly important as health care cost inflation and an aging population continue to drive health care costs higher over time.
Also, connecting health to diversity and economic inclusion, healthcare services company Progyny partners with managed care companies and employers to provide employees with a fertility benefit. Progyny improves the employee experience with fertility services, helps employers recruit and retain a talented workforce and helps managed care companies and employers save money by having a high success rate with fewer multiple births and complications. One of Progyny’s goals is to help people of all backgrounds, including members of the LGBTQ community and single parents, successfully start a family. It is a great example of a very interesting business that is a win-win-win: for employees, employers and the health care system as a whole. And, of course, for investors.
What do you think will be the biggest social considerations of the next year or two?
Gender and racial equality, for which data and disclosures are improving, should remain front and centre. Also human rights issues related to migrant labour and farm labour as well refugees across the globe.