An Ethical Insights blog: the role of investors in driving better working standards

Guest blogger, Lisa Nathan of ShareAction, the Movement for Responsible Investment, reprises a talk she gave at an ETI Ethical Insights breakfast briefing, Ethical Investment: Does it drive better business practice for the benefit of workers? where she was a panellist alongside Martina MacPherson of Hermes Investment Management and Janet Williamson of the TUC.

I was delighted to join ETI’s briefing to articulate ShareAction’s perspective on the role investors can play to improve working standards. As a charity promoting Responsible Investment we act as an intermediary between civil society and the investment community.

Martina provided a fascinating insight into how investors consider and engage with ethical concerns because of the material risks to investments. Janet highlighted the gap that still exists between views and actions when it comes to working standards: for example, investors often oppose poor working standards but will not vote for shareholder resolutions on working standards.

ShareAction helps civil society organisations bring issues to investors’ attention by highlighting the financial risks associated with them. We do this in three ways:

1. We train civil society to use the AGM process to effectively communicate questions that place issues on the agenda at the board of a company.
2. We support investors to engage meaningfully with companies on these issues to encourage best practice.
3. We publish and distribute briefings for investors on specific social and environmental issues.

The UK Living Wage and its uptake by FTSE 100 companies

Our investor initiative in support of the UK Living Wage epitomises our role as an intermediary.

As an issue that comes squarely out of the needs of working people, ShareAction works to bring the Living Wage to investors’ attention and then mobilise effective investor action to increase its uptake by FTSE 100 companies.

Through outreach to investors to increase understanding about how low pay can be a material risk and paying the Living Wage a commercial opportunity, we now work with investors with £1.2 trillion in assets under management to encourage companies to adopt the Living Wage.  

Twenty-nine of the FTSE 100 are now accredited Living Wage employers, with a further 12 firms paying the Living Wage rates.

Making the investment system more accountable to pension savers

For investors, driving better working standards means adopting a long-term approach. To encourage long-term thinking, the investment system must be more accountable to the pension savers whose money it manages. 

If pension funds hear from their savers that issues like poor working conditions matter to them, that encourages investors and asset managers to engage with firms to drive better working conditions.

The discussion at the breakfast briefing dove straight into this issue.

A key question raised was: what causes the apathy that seems to hold back the potential of this system to drive change? Answers suggested included short-termism and misalignment of incentives among investors; and a particular disinclination towards issues associated with trade unions in the typical investor mindset. These are serious challenges, but there are signs that this apathy is gradually shifting, as more and more investors are considering and acting upon environmental, social and governance issues.

But there’s much more to do to channel the power of the £43 trillion invested in publicly listed firms to drive better working conditions. We must connect the dots between civil society expertise on issues, investor interest in sustainable companies, and the individual savers who would like to see a comfortable retirement income built on treating workers right.

We all can play a part.

Investors can engage with firms to promote best practice. Civil society can incorporate strategies to communicate research to investors. And as an individual, you can email your pension fund to ask them to engage with companies to encourage the adoption of the Living Wage.  

Find out more about ETI’s Ethical Insight Breakfast Briefings here