The Great Reshuffle
With the U.S. workforce remaining in the spotlight, the Great Resignation — or Great Reshuffle — cannot be ignored. The department of labor reported record job openings in 2021, with 10.9 million jobs open as of December 2021.4 Resignations propelled by care responsibilities or early retirement are coupled with those by workers reconfiguring their careers; seeking employers aligned to their values and roles that better suit and support their work-life needs. In the search for talent amid acute labor shortages the importance of a company’s relationship with workers — think wages, benefits and flexibility, training and development — becomes ever more critical as the contract between employer and employee is being rewritten.
All this is another way of saying that investing increasingly pivots on the ‘S.’ We believe the potential for above-average returns lies with countries and companies that are actively working to improve access to quality healthcare and services, emphasizing greater diversity and inclusion, and that are abundantly aware of their social footprint in their communities.
Access to better metrics
“Investors interested in factoring social issues into their choices can find a growing array of metrics on the progress industries and countries are making,” says Kozy. The independent, nonprofit Sustainability Accounting Standards Board, for example, identifies the ESG standards most relevant to specific industries. The Social Progress Index, published by the Social Progress Imperative, ranks countries around the world based on issues such as access to the internet, basic education, health care and other factors. And the World Bank’s Sovereign ESG Data Portal, launched in 2019, provides ESG data on countries and regions.
What could this mean for investors?
In the end, ESG factors provide investors with an additional dimension to help identify market risks and potential opportunities, and we believe portfolio strategies in the coming years would allocate more capital to assets backed or underpinned by high-sustainability initiatives. Structural dynamics like rising political pressure and regulatory change are additional planks to sustainable investing and capital reallocation. Doing well and doing good have become strategic priorities of many firms and the asset managers that invest in them. Companies that are most transparent about their goals, and are better at execution, may reward investors.1
While sustainable and impact investing aims to support a healthier society and planet, it’s vital to keep your personal financial goals at the forefront, Kozy says. “Things like corporate productivity and earnings still matter, and so do returns. That hasn’t changed.” Thus, sustainability can be an important consideration when making investment choices but not the only one. You also need to think about risk, how much time you have until retirement and other key issues, Kozy believes.
The bottom line: Output and profits matter to investors. That’s neither new nor about to change. What is new and changing is that other metrics have been gaining in importance in determining returns, flows, asset allocation decisions and the like. Now and in the future, many countries and companies may be increasingly judged on a series of ESG metrics.
As part of building a balanced portfolio, you might ask your advisor to help you identify companies or funds of companies with strong records for supporting their employees and communities, or with innovative approaches to social or environmental issues. Likewise, you may use increasingly sophisticated metrics to lessen your exposure to businesses or regions whose poor ESG performance could mean potential trouble ahead. Notes Kozy, “In the end, ESG provides investors with an additional dimension to help identify market risks and opportunities.”
For more insights, read “Sustainable Investing: A focus on the ‘S’ in ESG” from the Chief Investment Office.