Investors in Australia, New Zealand and Europe, have identified challenges around improving the social impact of investments, noting that the collection and reporting of information in this area – and the availability of skilled staff – continues to lag that related to environmental and governance impact.
“Across the superannuation industry and with ESG professionals broadly, the S criteria in the ESG has been, for the most part, slower to advance,” Fiona Mann, head of listed equities and ESG at Australian superannuation fund LGIA Super, told AsianInvestor.
“S factors such as pay equality and diversity targets are slowly being adopted but they are not as commonly seen as other E and G metrics,” she said.
Dr Raphael Mertens, chief risk officer and head of ESG for Allianz Real Estate told AsianInvestor that the collection of information was in its infancy. In the absence of binding targets around social engagement from government or across the investment industry, individual investors had a responsibility to improve disclosure in this area.
“Qualified targets will need to be agreed – and the data collection process viable – to make social programs have a material impact and drive value. But we believe this topic is too important to sit and wait for industry targets to be agreed, we will start now and adapt what we do over time,” he said.
Anne-Maree O'Connor, head of responsible investment, at New Zealand superannuation fund NZ Super is currently recruiting a full-time senior staff member with responsibility for responsible investing. She told AsianInvestor there was a particular scarcity of skilled staff in the area of social responsibility.
“Our need now [for staff] is on social issues, such as modern slavery, ethics, including in AI, and [defending] human rights, including when [abuses] are associated with governments. So, there are a lot of big challenges, I think.”
Increasingly, the fund is looking to NGOs and the media for skilled professionals.
“We’re having to learn how to communicate [on these issues] and there is definitely potential pool of people there, if people are happy to go from a campaign-type roll to changing [things] from within,” she said.
Digging into the supply chain
O’Connor said that policing social risks in the supply chain to the satisfaction of stakeholders was particularly challenging, given the length of supply chains in many sectors, but the fund prioritised a co-operative approach when working with fund and asset managers.
“Human rights abuses might be happening seven [links] down the supply chain. Rather than throwing stones we work with those with knowledge on the ground who know how you can influence your supply chain, such as NGOs, auditor, technology specialists,” she said.
Mertens said that Allianz Real Estate did not target a specific level of supply chain engagement when it came to social risks. “We don’t have a set number of ‘layers’ when it comes to scrutiny. But we do believe strongly in engagement. We believe that it is our responsibility as a large participant in the industry to help steer our industry by example.”
One reason that social reporting lags environmental reporting relates to the challenge of measurement.
“In the context of more social impacts, such tools do not currently exist to the same extent. It is much harder to measure the impact that buildings have on the communities they serve, and quoting a human rights charter is not enough,” said Mertens
He noted that social factors lacked certifications and standards comparable those available for environmental performance, such as BREEAM, an initiative of the UK’s Building Research Establishment, which provides third party certification of the assessment of a building’s environmental, social and economic sustainability performance,
“We need to make sure the buildings we manage serve society. But with social elements, targets are harder to define. Tenant satisfaction is a key element, for instance, but ‘satisfaction’ can be a subjective view difficult to quantify across global markets, tenant types and sectors.
However, there were some areas where social dimensions were easier to measure, and where investors and managers should focus their efforts, Mertens added: “For instance, air quality has become an increasingly important consideration for tenants [and it] can be measured relatively easily – improvements can be tracked and the benefits outlined. As such, it is not hard to imagine buildings and landlords rated against air quality. We have already started this mechanism.”