Key Social Factors in ESG Investing

Arun Kelshiker

20 years: Asset management and stewardship

In this video, Arun unravels the complex interplay between social factors and financial health. He explores nine influential social megatrends, including globalisation, automation, and changing demographics, shaping the dynamics of governments, economies, and societies. He further talks about the key internal and external social factors investors should consider, from human capital development to stakeholder relations and ethical business practices.

Investment Management Sector

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Key Social Factors in ESG Investing

13 mins 12 secs

Key learning objectives:

Outline the social megatrends influencing governments, economies and societies
Understand the key social factors investors should consider

Overview:

Social factors, categorised into internal and external factors, can significantly influence a company's financial health. Internal factors cover human capital, working conditions, and human and labour rights, while external factors cover aspects such as stakeholder relations, sourcing, product liability, and social opportunities. Amidst this, nine social megatrends have emerged: globalisation, automation, digital disruption, evolving work dynamics, individual rights shifts, changing demographics, urbanisation, and religion's influence. Coupled with challenges like climate change and migration, these elements present a complex landscape for businesses and investors. Recognising their interplay is essential for strategic decision-making.

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Summary

What social megtrends are influencing society?

There are 9 key social megatrends influencing society:

Globalisation is turning local economies into international marketplaces.
Automation and AI are increasing production rates but may make certain jobs obsolete.
Income inequality is on the rise, influenced by worldwide dynamics.
Digital disruption is challenging traditional business models.
The Covid pandemic has significantly altered patterns of work, leisure, and education.
Individual rights, responsibilities, and family structures are undergoing shifts.
Demographics are evolving, with aging populations in developed countries.
Urbanisation is progressing rapidly, with predictions of a predominantly urban global population by 2050.
The religious landscape is changing, impacting consumer behaviours and local economies.

What are the key social factors investors should consider?

Internal social factors: Human capital development is crucial, as a company's commitment to its workforce often determines its long-term viability. Working conditions, including health and safety, reflect a company's responsibility towards its employees. Human rights adherence, especially to global frameworks like the UN Global Compact, offer insights into a company's ethical stance. Labour rights, such as the freedom to form associations or unions, indicate a company's relationship with its workforce and potential risks related to employee satisfaction.

External social factors: Stakeholder relations and controversial sourcing spotlight the ethical dimensions of a company's supply chain and its broader social impact. Product liability and consumer protection are essential as they address the potential risks associated with defective goods and the company's commitment to its consumers. Social opportunities tie to the UN Sustainable Development Goals, revealing how companies can be profitable while addressing societal challenges. Intensive animal production considerations involve both animal welfare and potential human health impacts, underscoring the broader consequences of industry practices.

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Arun Kelshiker

Arun Kelshiker was formerly the Head of Asset Allocation and Portfolio Strategy at Standard Chartered Bank and part of the bank's Global Investment Committee, where he provided investment advisory and multi-asset portfolio solutions. His focus is now with Cambridge Sustainable Investment Partners, which draws its expertise from the Resilience and Sustainable Development Centre at Cambridge University. He is also a university lecturer at the Frankfurt School of Finance and Management and is Vice Chair of the CFA UK's Inclusion and Diversity Committee and its Investment Committee.

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