Environmental And Social Factors Gaining Ground In Pension Fund Investing ' September 2020

• Published date: 30 September 2020
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Environment, Coronavirus (COVID-19), Financial Services, Fund Management/ REITs, Corporate and Company Law, Environmental Law, Clean Air / Pollution, Shareholders, Operational Impacts and Strategy
• Law Firm: MJ Hudson
• Author: Ms Joanne Job and Karen Shackleton

If the COVID-19 pandemic has shown us anything, it is the importance of the community in which we live and work. There have been many uplifting stories in social media about acts of goodwill, not just by individuals, but by companies who have responded to the crisis in a positive way. For example, manufacturers who switched to producing ventilators at short notice, hotel chains that agreed to house the homeless, supermarkets who prioritised delivery slots for the vulnerable and elderly to name but a few. Not only that, but employees have been sharing positive stories about the way their companies have looked after their financial and emotional wellbeing. Many firms have offered social events via Zoom for their staff, or have topped up salaries for those on furlough, or offered mental health counselling. More recently, companies have had to give careful consideration to the wellbeing of their employees as businesses start to re-open.

What are the implications for a pension fund investor of such activities, whether they are either good or bad? Should a pension fund worry about the social behaviour of the companies in which they invest? Can social behaviour ultimately impact the value of a company's share price?

On top of this, it is not just social issues that have come to light during the pandemic. The impact of the lockdown restrictions on air quality have been eye-opening. Air pollution levels in London dropped by 35% during lockdown. In China, scientists saw a 25% drop in air pollution in cities. Commercial flights have also dropped significantly - in the last week of March, there were 63% fewer flights worldwide, than the same period a year ago, giving us an insight into how the world might look in a net zero scenario. However, what remains to be seen is how companies will respond to this dramatic environmental improvement as lockdowns ease and businesses begin to return to normal. Will they continue to send staff members on frequent flights for meetings or conferences? Will they slip back into old habits with ease, or will they use this as an opportunity for more permanent positive change?

In a recent article, "A Sustainability Framework: Societal Shifts as Investment Risk" (https://www.lazardassetmanagement.com/docs/-m0-/70498/ASustainabilityFramework-SocietalShifts_LazardPerspectives_en.pdf) , Lazard put forward the concept of a firm's societal licence. They argue that relationship risks such as consumer values and environmental issues can influence...