Wellian Weekly 27.04.2020

“S” from “ESG”

Having worked from home now for several weeks, I have been considering what the world will look like and act like when we are released from our self-isolation. I fear this might last a couple of months and our outlook on investments, the economy, the way we interact with our companies and many other factors will change. Potentially forever.

For instance, I bet there is more than one CEO presently sitting at home realising their business is operating at a fairly good capacity (for the circumstances) and realising that a future cost saving could be made by reducing office space – after all, if people are working well from home, do they really need to have a full-time desk in the office once this issue is resolved?

With video conferencing seemingly working well, will the number of meeting rooms be needed? Will the number of face-to-face meetings be needed? Will the need for travel be as high? As long as we have good quality broadband, will working from home become more of a regular thing?

When your working environment changes, you consider the environment differently. When you can’t go outside, you want to go outside. I’m not a big fan of shopping, but I miss the fact I can’t wander around the shops (even if I have no intention of buying anything) and the recent activity (albeit a very quick U-turn) by Mike Ashley (owner of Sports Direct) has really made me think about the “S” in “ESG”.  As we all know, “E” stands for Environment, and “G” Governance.  The “S” is social (or society). 

Although, ultimately demanded by the Prime Minister, our business was on the front foot – a number of members of staff had already started to work from home. Other members were testing their working practices from home whilst others stayed in the office, just in case there were issues. As a business we have a Business Continuity Plan as well as a Disaster Recovery Plan, and I am happy to state they all worked incredibly well. This isn’t the point of this piece. The point is we were ready should an unusual situation occur.  The management were on the front foot, they were both active and reactive. Since we’ve been working from home communications have been high, we even had a town hall meeting (via Zoom) with almost 200 online where it was consistently mentioned that our safety and the safety of our families was paramount.

It feels like a nice place to work. It makes you feel appreciated.

Back to Sports Direct and “social”. When the Prime Minister and Chancellor of the Exchequer said only key workers should go to work, why a shop selling clothing and sports related accessories considered itself different from all other retailers and decided that the shops should stay open cried out to me that the management were focused first and foremost on profit, not their employees. The company has an online presence and this part of the business is still operating.  Sports Direct have also come under fire in the past due to zero hours contracts for instance and not paying a great deal of attention to the welfare of their staff. From my perspective, it does not stack up too well from an “S” perspective. Also, by having such scant regard for “S”, does that also mean it doesn’t stack up well from a “G” or an “E” perspective either?

The world is changing. Of course, companies are not charities. Of course, without profits companies can fold and people can lose jobs. Also, times are changing. Companies are an important part of their community. Boards need to be aware of the needs and demands of not just their shareholders, but also their stakeholders.

From a fund manager point of view – i.e. looking at the company that is Sports Direct, do situations like this influence whether the shares should be bought and held in a portfolio? There are other companies, in other industries under the spotlight too. JD Wetherspoons as well has come under some criticism of late too. Looking forward, will fund managers view these companies with a different perspective – even if they are not dedicated ESG managers? Will “S” take a greater role in the future for fund managers and analysts?

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