Asset Owners Score Poorly on Social, Human Rights
WBA social benchmark finds financial services is worst-performing and least transparent sector on key social issues.
Pension and sovereign wealth funds have been heavily underperforming on matters related to social and human rights.
This is the stark message conveyed by a new study from the World Benchmark Association (WBA), which gave some of the world’s largest asset owners rock-bottom scores.
Asset managers and private equity houses also scored poorly in the WBA’s first ever social benchmark – even those that have been vocal proponents of ESG and sustainable investment. Much of this performance was down to insufficient reporting, lack of transparency, and absence of targets.
Meanwhile, some of the best performers – perhaps counterintuitively – were in the consumer goods, clothing, footwear, and mining & energy sectors, all of which have been at the centre of environmental and social controversies including use of poorly paid labour, extraction of fossil fuels, and destruction of indigenous sites.
The WBA assessed 2000 of the world’s most influential companies, looking at three areas: their approach to human rights; their role in providing and promoting decent work at a living wage; and their ethical conduct in areas like lobbying and tax.
The list of companies included publicly traded, private-held and state-owned enterprises representing 45% of global GDP and employing around 95 million people.
Overall, the results were bad. Around 90% of assessed companies were “not even halfway to meeting fundamental societal expectations” in those three areas, the report found. Over 30% of companies scored only 2 points or less out of 20.
“The fact that 90% of these companies are failing to act on fundamental social expectations shows the state of play of the private sector,” said Namit Agarwal, the WBA’s Social Transformation Lead. “Regulation, guidance, and external pressure are necessary to steer businesses in the right direction.”
Bottom of the pile
Pension funds, in particular, scored extremely poorly. The New York State Common Retirement Fund, for example, scored 0 out of 20, as did the Japan Pension Fund Association.
UK pension fund the Universities Superannuation Scheme scored 0.5 out of 20, while Australia’s largest superannuation fund AustralianSuper scored 3. Californian public sector pension fund CalPERS, the biggest in the US, scored just 3.5 out of 20.
Sovereign wealth funds fared no better. The Korea Investment Corporation and Kuwait Investment Authority both scored 0 out of 20, while the China Investment Corporation, Qatar Investment Authority, and Singapore’s GIC and Temasek each scored 0.5 out of 20. Meanwhile, Australia’s sovereign wealth vehicle the Future Fund scored just 1.5.
“Funds and financial services are at the bottom across the board,” Agarwal told ESG Investor. “In terms of their performance across measurement areas, it’s pretty much the same across the three – whether it’s human rights, living wage, or ethical action.”
Norway’s Norges Bank Investment Management, which manages the largest pool of sovereign wealth savings in the world and has often taken progressive stands on ESG issues, scored a relatively weak 5.
Asset managers generally performed only slightly better than asset owners – though an exception to this was UK manager Abrdn, which scored 13.5 out of 20.
Vanguard, the second biggest asset manager in the world, scored a paltry 1 out of 20, while Pictet scored just 0.5. Other notable names included in the study were BlackRock (7.5), M&G (7.5), Legal and General (7), Federated Hermes (6), Brookfield (6) IFM Investors (4.5), Janus Henderson (4)m T. Rowe Price (4.5), Appollo (3.5), and KKR (0.5).
According to Agarwal, one reason behind this overwhelmingly negative picture may be that funds and financial services often aren’t consumer-facing companies – and so may feel less pressure to adopt clear, transparent social and human rights positions.
As such, the issue is not necessarily bad behaviour, but rather lack of transparency and clear target-setting, he said.
“What we have found is that when companies in this sector are disclosing or making commitments, [those] are not enough to meet our indicator requirements,” Agarwal added. “In some cases there is no reporting, and in others their disclosures are not meeting international guidelines and standards. There is a lot of catch-up they need to do.”
Leading the pack
Some companies did performer better, though none scored more than 15.5 out of 20 – and just four achieved that number.
One of them was miner and commodity trader Glencore, the world’s top shipper of thermal coal. The other three were Portuguese utility EDP, British-Dutch consumer goods giant Unilever, and fertiliser producer Yara.
Coal and metals miner Anglo American, oil company Eni, chocolate company Hershey, and consumer goods companies Nestle and L’Oreal each scored 15 out of 20.
Overall, the top-three performing sectors were apparel and footwear, information technology, and retail – which the report suggested did well because they are all consumer-facing and therefore subject to greater public scrutiny.
Geographically speaking, the best performing region was the Pacific – largely due to Australia’s strong performance. Second was Europe, followed by North America. According to the WBA, this suggests that stringent regulatory regimes – including reporting requirements – are key drivers of high scores.
However, the report noted that regions such as Asia and the Middle East, which overall didn’t do well, hosted some top-performing companies. This, it said, demonstrates that regulatory regimes need not determine a company’s human rights and social responsibility record.
Along with improving their own performance, Agarwal urged asset owners to exert more pressure on the companies they own.
“We have identified some fundamental gaps, and investors have the leverage on some of the biggest companies [to fill those],” he said. “Asking companies to have a policy or commitment in place on issues like the living wage, human rights due diligence and corporate lobbying, is definitely something investors should do in response to the findings of the benchmark.”
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