IN ESGMarianne Harper Gow
The complexity of assessing societal impact shouldn’t deter investors from looking at a company from every angle, argues Marianne Harper Gow.
The Covid-19 crisis may have brought the issue to the fore, but there’s nothing new about focusing on a company’s role in the social order. I cite as evidence an article I came across from The Times, dated 13 January 1975, headlined “Workers want more information and a bigger say on running things”. The report was based on a UK-wide survey, concluding: “Perhaps the biggest failure by employers, and one of the greatest importance, is the failure to demonstrate to workers the [commonality] of interest between the management and employees.”
At Baillie Gifford we believe it’s in everyone’s interest that companies do the right thing. We welcome the increased recognition by employers of the ‘S for social’ in ESG in the 50 years since that survey.
The other parts of the ESG acronym are easier to determine. The ‘E’ has been boiled down to commitment to tackling climate change, while ‘G’ is about research into management quality and, at the very least, is reviewed at annual AGMs.
As well as highlighting social inequalities, the coronavirus provided an opportunity for Baillie Gifford to demonstrate the support that responsible share owners owe to investee companies at all times. When the crisis struck, we telephoned and emailed management teams and board members, emphasising our commitment as long-term shareholders. We told them we supported their short-term crisis response and encouraged them to put people above profit.
Workers want more information and a bigger say on running things
Once this crisis is past, the vulnerabilities it revealed may promote wider consideration of how a business impacts the people surrounding it. ‘People’ here means workers, customers, suppliers, neighbours and future generations. The complexity of this stakeholder web explains why there are no easy measurements of a company’s societal impact, and why painstaking analysis, proactive engagement and a case-by-case approach are needed.
As long-term investors our research focuses on management quality and corporate culture. This is qualitative research that builds partnerships with the companies we invest in.
‘S’ covers many issues central to reputation, brand value and customer satisfaction. The issues are as diverse as health and safety, human capital management, modern slavery, working conditions, fair pay, data security and supply chains. Failing on any of these puts a company’s social licence to operate at risk.
As well as the non-negotiable commitment to diversity and equality, the above profusion of issues underlines the need for company-by-company research, especially as culture, norms and education levels vary so much internationally.
There needs to be honest recognition across both companies and the investment industry that much more must be done to support racial and gender equality, demanding a step change in developing best practice in culture, governance and disclosure.
What matters most when we consider the social impact of a company? We’re guided by three principles: that poor social practices create risks and destroy value; that good practice creates value and enhances productivity, and that solutions to social problems often provide attractive investment opportunities for clients.
But having identified what matters, how do we measure it? There are no easy metrics for corporate culture, supply chain resilience, data privacy and security. Company policies may express intentions, but warm words unsupported by outputs are mere greenwash.
To take one example: Baillie Gifford has engaged with Samsung Electronics for many years and we continue to invest in the South Korean giant. In the past it’s had issues with allegations of corruption and poor labour relations. Our engagement revealed that, following pressure from investors like ourselves, it now has clear policies for tackling these challenges. Yet problems have continued as the company has shifted production to countries with looser rules on labour and wages. Samsung is being challenged in the French courts by two Non-Government Organisations accusing it of “misleading consumer practices” in making claims belied by alleged labour issues in China and Korea. The accusers claim that, as French consumers were among those deceived by Samsung’s pledges of ethical treatment of workers, French courts can rule in the case.
This legal challenge to Samsung’s alleged greenwashing underlines the increased importance of managers not merely accepting that a company has ticked a box. They should instead be having conversations about the principles and business models from which these issues arise.
Ultimately, we believe that companies solving social problems present attractive investments for our clients. That’s why we tackle head-on the complexities surrounding the social aspects of ESG.
The great pandemic of 2020 has brought this ‘S’ into focus, forcing investors to give it the attention it deserves. The next decade should see a wider understanding of what it means in practice, producing ever-improving ways to ensure that business and society are better aligned. It’s our responsibility, in the meantime, to challenge companies when we don’t see that alignment happening, and to support them when we do.
IMPORTANT INFORMATION AND RISK FACTORS
The views expressed in this article are those of Marianne Harper Gow and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in September 2020 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this article are for illustrative purposes only.
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.
Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/ Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.
Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018 and is authorised by the Central Bank of Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (“FinIA”). It does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co.
Baillie Gifford Investment Management (Shanghai) Limited is wholly owned by Baillie Gifford Overseas Limited and may provide investment research to the Baillie Gifford Group pursuant to applicable laws. Baillie Gifford Investment Management (Shanghai) Limited is incorporated in Shanghai in the People’s Republic of China (PRC) as a wholly foreign-owned limited liability company under the Company Law of the PRC, the Law of the PRC on Wholly Foreignowned Enterprises and its implementing rules, and other relevant laws and regulations of the PRC. Baillie Gifford Investment Management (Shanghai) Limited is registered with the Shanghai Municipal Administration for Market Regulation, with a unified social credit code of 91310000MA1FL6KQ30, with its registered office at Unit 4203-04, One Museum Place, 669 Xin Zha Road, Jing An District, Shanghai 200041, China.
Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 licence from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Room 3009-3010, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong. Telephone +852 3756 5700.
Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.
Mitsubishi UFJ Baillie Gifford Asset Management Limited (“MUBGAM”) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.
This material is provided on the basis that you are a wholesale client as defined within s761G of the Corporations Act 2001 (Cth). Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth). It is exempt from the requirement to hold an Australian Financial Services License under the Corporations Act 2001 (Cth) in respect of these financial services provided to Australian wholesale clients. Baillie Gifford Overseas Limited is authorised and regulated by the Financial Conduct Authority under UK laws which differ from those applicable in Australia.
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.
The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission. Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (“BGE”) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.
Baillie Gifford Overseas Limited (“BGO”) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this document represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.
This strategy is only being offered to a limited number of investors who are willing and able to conduct an independent investigation of the risks involved. This does not constitute an offer to the public and is for the use only of the named addressee and should not be given or shown to any other person (other than employees, agents, or consultants in connection with the addressee’s consideration thereof). Baillie Gifford Overseas Limited has not been and will not be registered with Qatar Central Bank or under any laws of the State of Qatar. No transactions will be concluded in your jurisdiction and any inquiries regarding the strategy should be made to Baillie Gifford.
Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This document is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.
49216 ALL WE 0395
Marianne Harper Gow Governance and Sustainability Specialist
Marianne joined Baillie Gifford in 2004 and her role has evolved over the past 16 years, along with the Governance and Sustainability function, meaning her experience extends over many areas, including research and analysis, company engagement, voting and client reporting. Her current role involves engaging with institutional investors, regulators and industry bodies across the globe on topics as diverse as climate change, dual class share structures and human capital management. Prior to joining Baillie Gifford, Marianne worked offshore carrying out environmental and geological survey work. She graduated BSc (Hons) in Environmental Science from the University of Aberdeen in 1996 and MBA from the University of Edinburgh in 2002.
She is also a member of the Social Investment Scotland (SIS) Ventures Investment Committee.
YOU MAY ALSO LIKEInsights.Visit Baillie Gifford's Insights page.The Next Big Things.Tom Slater, head of Baillie Gifford’s US Equities team reports on how visionary businesses are looking beyond current market events and thinking about the future.Governance in China: Risk or Opportunity?Growing familiarity with China’s markets invites closer examination of governance at a country and corporate level. A company by company approach is vital to limit the risks and find the opportunities, writes Ben Lloyd.Living Longer: Can We Afford It?More of us are living longer, staying healthier for longer and working for longer. What are the implications for investing and financing this longer life? Listen to Baillie Gifford’s Steven Hay to find out.