Page 12 - DIY Investor Magazine | Issue 34

PERSPECTIVE: WHY INVESTORS CAN’T OVERLOOK THE ‘S’ IN ESG
The ‘S’ in ESG has never been more important. We explore some of the risks, as well as opportunities that exist in the UK stock market, and ask how companies can be more socially responsible.
Investors are increasingly being asked to deploy capital more responsibly; the increase in assets under management in the ESG (environment, social, governance) space over several years reflects this.
The focus on achieving net zero greenhouse gas emissions and the increased need for renewable energy sources are just two drivers fuelling the growth of capital deployed in the ‘E’ bucket within ‘ESG’. But what about the ‘S’?
In recent years, the rise of social movements such as Me Too, Black Lives Matter and Time’s Up has brought greater awareness of inequality within society across gender, socioeconomic and racial lines; despite heightened attention, the ‘S’ in ESG has received less funding relative to the ‘E’.
There are reasons for this disparity in funding, such as the inconsistency in the different methods of reporting social- based impact data, and lack of consensus on which social issues to include for assessment.
WHICH UK COMPANIES ARE DOING ‘S’ WELL?
Investors looking to deploy their capital in a socially responsible way will focus on companies whose products and services provide clear benefits to society.
The United Nations’ Sustainable Development Goals (“SDGs”) is a universal call to action to end poverty, protect the planet and ensure that all people enjoy inclusion, peace and prosperity. Of the 17 SDGs, at least 75% are focused on improving society, and is a useful tool to assess a company’s qualitative impact on society.
Two smaller UK companies whose products and services we believe are aligned to the SDGs include:
MAXCYTE (SDG 3: GOOD HEALTH & WELL-BEING)
MaxCyte is a medical device company that sells and licenses gene editing equipment to global pharmaceutical firms, who use it in the development of therapies to cure diseases such as sickle cell anaemia.
Barriers to entry are high, making the company potentially attractive to investors.
OSB GROUP (SDG 11: SUSTAINABLE CITIES AND COMMUNITIES)
OSB Group is a specialist lender that offers residential mortgage products; it supports clients with imperfect credit history or non-standard income, through to first-time buyers using Help to Buy or shared ownership schemes.
SUPPLY CHAIN BOTTLENECKS POSE A RISK
But social responsibility goes beyond a company’s products and services; current global supply chain disruptions are likely to draw attention to the social issues within companies’ supply chains, particularly as efforts grow to improve working conditions amid labour shortages.
Previously, companies adopted voluntary international reporting and due diligence standards, but there is an increasing global regulatory emphasis on corporate responsibility.
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