Evidence is growing that company standards on social factors are a major risk and opportunity set for institutional investors to examine.
The coronavirus pandemic has highlighted many social and ethical considerations that aren’t typically factored into the broader analysis that institutional investors perform on environmental, social and governance issues, says Bonnie Lyn de Bartok, founder and chief executive officer of the S Factor, a Toronto-based data and analytics firm.
The firm’s index, which takes a deep dive into companies’ social factors at the operational and supply-chain levels, outperformed other ESG indexes during the height of the pandemic-driven market pandemonium, she says.
“There’s certainly a business case for companies that were prepared to manage social issues.”
The firm started tracking specific pandemic behaviours, with the analysis examining wide-ranging data points such as whether companies were price gouging and how well they managed communications with staff.
While the pandemic score is best suited to a high-volume, high-frequency equity trading environment, de Bartok suggests longer-term investors take note that the score has been predictive, in both positive and negative cases, ahead of market opens.
“When I look at pensions specifically, we know who their suppliers are for ESG data. We have a good handle on what the strategies are. And the social conversation continues to be buried under the carbon reduction discussion.”
The tendency to use ESG as a catch-all term clouds its potential, she adds. Even as the pandemic continues, other social issues are coming to the fore. For example, class-action lawsuits about racial discrimination are suddenly in the limelight even though these problems have been ongoing, she notes, and these types of risks haven’t been as carefully considered so far.