Why Migration Should be on Everyone’s Radar
Jakob Thomä, Founder of Theia Finance Labs, says social concerns could displace nature as the top issue for investors.
With US President Donald Trump back in the White House, the issue of migration, both legal and illegal, is dramatically back on the political agenda. Some may argue that it never really left. Trump’s predecessor, Joe Biden, also struggled to contain the high and rising number of migrants trying to gain entry to the United States. Indeed, throughout the world similar debates have been playing out.
Despite this, however, social issues (including migration) are not receiving enough attention from investors, according to Jakob Thomä, a sustainable investment expert and Founder of Theia Finance Labs.
“Nature has been a big focus recently, and while that might feel like an intuitive follow-on for climate, in some ways it’s a bit surprising, when migration and other social issues feel as though they are the more obvious candidates from an ESG perspective,” said Thomä.
Theia Finance Labs is a not-for-profit think tank that, according to its website “acts as an incubator for and investor in public, mission-driven programmes at the intersection of finance and climate risks”.
Besides running Theia Finance Labs, Thomä is also Research Director for Inevitable Policy Response, a consortium convened under the Principles for Responsibility Investment (PRI), and a part-time professor at SOAS University in London. He has just written a ‘Pocket Guide to Planetary Peril’, due to be published on 20 March, which provides an insight into ESG risks for a more general audience.
Displacing nature
Data from the United Nations’ Department of Economic and Social Affairs (DESA) shows that international migration has been steadily climbing over the past half-century. This trend is set to continue, as political and economic instability increases, sometimes driven by climate-related factors.
In 1970, international migrants accounted for 2.3% of the world’s population (or 84.5 million people), according to DESA estimates. In 2020, the latest year for which data is available, this had climbed to 3.6% (or 280.6 million people).
The political backlash over the past decade has been clear as host populations feel squeezed and ignored. Responding to popular discontent, politicians of all persuasions have sought to increase barriers, with a fairly chequered history of success.
Against this backdrop, Thomä wonders why ESG investors are not taking more of an interest in the area.
“Arguably the most dominant, political issue of the last couple of years in any Western democracy has been migration,” he said. “There’s a long tail of issues connected with this. How does migration affect growth, labour rights, the living wage, the potential for social unrest?”
Sustainability-focused investors have taken a growing interest in labour rights, through initiatives such as the PRI’s Advance engagement programme, and are increasingly aware of the particular risks to migrant workers, especially along opaque supply chains,
But Thomä expects attention to increase further,
“I think that, next to climate, social issues are going to become the most dominant issue for ESG investors, and I don’t see nature playing that role,” said Thomä.
He insisted that it is dangerous for investors to overlook social dynamics, even if they may be poorly understood for the time being.
“Social issues can be highly disruptive and destructive for economic performance. The role of ESG investors should be to understand these risks and to navigate them. These are risks that are already materialising,” said Thomä.
Thomä added that sustainability-focused investors have a duty to consider the extent to which they are exposed to companies within the deportation supply chain, and whether they want to continue to invest in these.
Prison facilities is a good example of an area where investors might want to reconsider their involvement in light of the migration backlash. Any crackdown on illegal immigration has the potential to swell the number of those incarcerated and carries the risk of increased human rights abuses, especially where private prison providers are involved. For instance, the Trump administration has started sending migrant detainees to the notorious Guantanomo Bay detention camp in Cuba, despite international condemnation.
Data and disclosure
One of the reasons that the sustainable investment community has shied away from social risks could be a comparative lack of data and modelling capabilities, particularly beyond the most liquid assets in the most advanced economies. However, as Thomä points out, a similar barrier to climate assessment existed 20 years ago – and markets were able to overcome this.
“The first portfolio carbon footprint was run in 2005. We could have sat there and said: ‘oh, there’s no data – what are we doing?’” said Thomä. “People often become so wrapped up in quantifying [risks] for the purpose of reporting that they forget that they actually need to allocate capital and take decisions.”
Thomä thinks that a general reduction in the amount of compliance and measuring efforts could free sustainability-focused investors up to focus more on outcomes rather than box-ticking for regulators. UK asset owners have previously complained that they are feeling the squeeze from all the compliance and voluntary reporting that they do.
On this note, Thomä says that the dismantling of the finance sector’s climate disclosure frameworks – such as the Net Zero Asset Managers initiative (NZAM) and the Glasgow Financial Allianz for Net Zero (GFANZ) – could yield fresh opportunities, both to take more meaningful action in existing areas and to explore new ones, including migration and other social issues.
“All the ESG people that I talk to complain that they don’t get to do any proper work because of disclosure reporting,” said Thomä. “If we find that disclosure represents 80% of what ESG teams have to do, and teams get cut by 50%, all of a sudden there is space [and] perhaps a hidden opportunity to do more of the actual work around ESG, such as developing strategies and thematic priorities.”
Thomä says that if sustainable investment professionals are given more bandwidth to think of issues outside of climate disclosure, they will be able to offer more attention to other areas that are now coming to the fore.
“The polycrisis era is upon us. Social is only one of the areas. AI and new technology is another one. There are a lot of other issues where I think ESG investors could have something to say. The question is whether they will say it, or whether they will decide not to play in these arenas,” said Thomä.
This isn’t to say that the disclosure is inconsequential, says Thomä. However, he believes it will be more significant for how companies assess their own risks than for how investors understand the context in which they operate.
“We already have hundreds of data points from ESG data providers, so in terms of strategic asset allocation I don’t think [the end of NZAM reporting] is a material shift,” said Thomä. “Where it could be more significant is in bilateral engagement within companies and being able to gain a bespoke insight into part of the industry. There will definitely be moments where individual investors doing discrete actions are going to have information gaps.”
Thomä’s words carried a warning for the ESG community, too.
“If ESG professionals are sitting at their desks right now, wondering if they are going to have a job at the end of the year, then the way [to do that] is to make sure they are business relevant and business useful.
“Sure, you can blame Trump and everyone else [for where we are heading], but sometimes you have to look in the mirror and ask: ‘why aren’t we in the room where things are happening, bringing our expertise on these issues to the table?’ Because we are so busy measuring sustainability performance and sustainability outcomes and trying to find metrics that we can disclose.”
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