How social inequalities have been brought into focus by Covid-19 and what it means for investors

22 June 2020 | Investments | General | Schroders

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How social inequalities have been brought into focus by Covid-19 and what it means for investors

Covid-19 has highlighted the importance of the "S" of "ESG" (environmental, social and governance) in asset management, according to Anastasia Petraki, Schroders' Head of Policy Research.

The Covid-19 crisis has thrust social imbalances into the spotlight. Addressing these will require a collective effort. Governments worldwide have already stepped forward, but asset managers have a role to play too. Factoring companies' social impacts into investment decisions, as well as actively engaging with companies on social factors – including those relating to inequality – is going to be more important than ever. In the context of sustainable investing, this is increasingly being described as the rise of the "S" of "ESG" (environmental, social and governance).

Covid-19 has been the "great divider", not the "great leveller"
Some have branded Covid-19 the "great leveller" because anyone can get infected. A closer look at how the virus has impacted people's health and finances would indicate that "great divider" may be a more appropriate characterisation. Existing inequalities have been particularly exacerbated in these four areas: income, health, education, ethnicity.

Income: low earners have been hit hardest financially
Low earners are more likely to have been employed in the sectors most affected by social distancing rules and lockdowns. For example, entertainment and recreation, and the accommodation and food services sectors are among the three lowest paid in the UK. And this was where more than 80% of businesses either closed or stopped trading during the Covid-19 crisis. Many employees in these sectors have lost their jobs or have been furloughed.

Health: wealthier households have "health advantages"
People with high incomes have a relative "health advantage". Firstly, they are less likely to become infected as they are better able to work from home and more likely to live in less densely populated areas. Secondly, wealthier households have better chances of receiving fast treatment if infected. They are more likely to have private medical insurance. This is beneficial for non-Covid-19 related illnesses that require treatment too.

Education: pupils from higher income households have spent more time studying in lockdown
Households with higher incomes tend to have better access to technology and faster internet. Pupils in lower income households are therefore at a disadvantage if schools are closed. Many have been expected to continue their education at home via online tools and virtual classrooms. In the UK, children from the highest 20% (of income households) are spending one third more time on home learning than those from the bottom 20%.

Ethnicity: ethnic minorities have been more likely to be affected by the virus both physically and financially
The mortality data has revealed that people from all ethnic minorities are significantly more likely to succumb to the virus. Among other factors, there is a higher probability that they live in densely-populated urban areas. Ethnic minorities are also more likely to work in sectors associated with the "essential workers" cohort, including care. Ethnic minorities are more likely to be affected by the economic shutdown too. In the UK, men from ethnic minorities are significantly more likely than white British men to work in the most affected sectors.

The role of asset managers in bridging the social divide
None of the above is particularly surprising news. Social inequality has been a long time in the making. What the Covid-19 crisis has done, though, is to exacerbate the effects of these inequalities and bring them front and centre in people's minds.

Tackling such a multifaceted and complex problem requires a multilateral approach to which all actors in the economy contribute. Public policy is the most important one but there is a significant role for the private sector as well and asset managers within it. Our role as asset managers is twofold: to actively engage with our investee companies and to integrate the impact companies have on their stakeholders into our investment decisions.

Considering how this crisis has increased divisions in society, there is no doubt greater scrutiny of social factors in investment is here to stay. That's in both the public debate and the way in which asset managers should be thinking about investment. Our ability to integrate social impact into investment decision-making will be more important than ever.

Read the full report here

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