Why people in the workplace are the most valuable asset of all

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In recent years, several UK pension schemes have discussed their plans to help tackle climate change, particularly by committing to reducing the carbon footprint of their investments. You may have read about the NIST net carbon emissions targets announced two years ago.

The climate emergency, something the UK declared in 2019, prompted many to take action. Therefore, much of what we hear from investors on the topic of responsible investing has focused on environmental issues.

However, these are not the only considerations. The way our portfolio companies operate and manage the social aspect of their business matters to us as long-term investors. These include how they approach their workforce, the diversity of the executive team, health and safety, and how they take changing societal attitudes into account in action plans.

This is often referred to as social risk or opportunity management, or the “S” in ESG (Environmental, Social and Governance). This concept is now on the agenda, with many of these issues coming to the fore during the Covid-19 pandemic.

Take, for example, British companies that pay employees an actual living wage. Our research shows that a fair salary helps maintain a more productive and motivated workforce that is more likely to stay with the organization for longer. This reduces long-term staffing costs, increases employee retention, and increases experience. In short, paying a real living wage is a good long-term business decision.

The work of the Living Wage Foundation has been fantastic and we have supported the Living Wage Foundation campaign many times, engaging many of the UK’s top employers asking them to become certified live wage employers. This has been a huge success. Since we started participating alongside other investors in 2018, more than 50 UK companies we invest in are accredited employers.

As a responsible agent for the companies we invest in, how we engage with our workforce provides important insights. It can reveal the true culture of the company and help us form an opinion about whether the company is likely to remain profitable in the long run.

This may seem like a lot to infer, but the way a company deals with things like employee salaries, training and development, and working conditions can sometimes be more meaningful than reading a company’s mission statement or balance sheet. It gives a clear indication of how a company is managing its most important resource: its employees.

As companies continue to recover from the pandemic, they must consider how they can become stronger and more resilient. Companies that do not care about their workers and lack the skills and diverse perspectives in their leadership teams will struggle to meet the challenges of a rapidly changing environment.

In another example, last year the government introduced a tax on sugar in soft drinks. So we want to hear from the food companies we invest in how they adapt and promote healthy food. The number of fines for sugary products is likely to increase, and if not carefully managed, these companies will find that they have hard-to-sell products.

Manufacturers and retailers that advance the game by promoting healthy food ranges and building the right business relationships should be better positioned to be sustainable. Those who are late in reaction should expect to pay a premium for making changes to their business models very slowly.

For us at Nest, we have focused on the “S” in our approach to managing ESG issues for many years. We see these issues within environmental issues, social issues, and corporate governance as interconnected that must be addressed collectively.

Companies with well-functioning and diverse boards are in a stronger position to recognize the importance of environmental and social issues affecting their business and to take the necessary steps to manage them. These should be companies with a positive future and are also where we want to invest our members’ money.

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