In focus

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


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.

  1. 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.

  1. 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.

  1. 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%.

  1. 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. There is a strong social element and specific ways to address inequality in both processes.

We have already stepped up our engagement activities in this space since Covid-19 has emerged. We have actively participated in several collaborative engagements on employee and labour-in-supply-chain issues.

Moreover, we have increased individual engagements with companies where we have long held concerns about labour practices. We have continued our work with the Workforce Disclosure Initiative (WDI) whose purpose is to ensure that listed companies produce comparable workforce reporting on an annual basis.

Alongside this engagement, we have been integrating social issues into investment decision making long before the Covid-19 crisis. Looking at how companies are connected to the outside world, and how they impact on it, has been an area of longstanding focus for Schroders. We have developed a tool to quantify this and integrate it into our investment decisions called SustainEx.  

The balance between “E”, “S” and “G” (environment, social, governance) factors in investing

Companies’ sustainability practices are increasingly important to investment decisions, and this means a focus on environmental, social and governance issues.

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.

Many of the discussions we are having in our active engagement with companies involve this “S” in “ESG”. But the necessary focus on inequality and social issues more broadly will not reduce our engagement on the other aspects of ESG. The “E” and the “S” and the “G” are not “either/or”.

Sustainability is something that encompasses all aspects affecting the long-term viability of a company.

Addressing climate change is one. Ensuring appropriate governance is another. Achieving positive social impact is another. They are all equally important and necessary conditions for long-term value. 

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