Ch 4 Social Factors

Question 1

4.1.1 Explain the systemic relationships and activities
between business activities and social issues, including:

globalization; automation and artificial intelligence (AI); inequality and wealth creation; digital disruption, social media and access to electronic devices; changes to work, leisure time and education;
changes to individual rights and responsibilities, and family structures; changing demographics, including health and longevity; urbanization; religion.

Answer 1

systemic relationships and activities

between business activities and social issues

Question 2

4.1.2 Assess key ‘megatrends’ influencing social change in terms of potential impact on companies and their social practices:

climate change; transition risk; water scarcity; pollution; mass migration; loss and/or degradation of natural resources and ecosystem services.

Answer 2

‘megatrends’ influencing SOCIAL change in terms of
potential IMPACT on companies and their social practices:

climate change;
transition risk;
water scarcity;
pollution;
mass migration;
loss and/or degradation of natural resources and
ecosystem services.

Question 3

4.1.3 Explain key social concepts from an evidence-based perspective:

human capital: development, employment standards, and health and safety;

product liability/consumer protection: safety, quality, health and demographic risks and data privacy and security; stakeholder opposition/controversial sourcing;

social opportunities: access to communications, finance and health and nutrition; social and news media; animal welfare and microbial resistance.

Answer 3

key social concepts from an evidence-based perspective

Question 4

Who are internal stakeholders and external stakeholders?

internal stakeholders and external stakeholders are impacted by social factors

Answer 4

Social factors can also be categorized between those impacting

external stakeholders (such as customers, local communities and governments) and

groups of internal stakeholders (such as the company’s employees).

Question 5

EXAMPLES OF SOCIAL FACTORS THAT IMPACT

INTERNAL AND EXTERNAL STAKEHOLDERS

Answer 5

SOCIAL FACTORS THAT IMPACT INTERNAL STAKEHOLDERS
1. Human capital development.
2. Working conditions, health and safety.
3. Human rights.
4. Employment standards and labor rights.

e. freedom of association and employee relations;
f. forced labor; and
g. living wage.

SOCIAL FACTORS THAT IMPACT EXTERNAL STAKEHOLDERS
1. Stakeholder opposition and controversial sourcing.
2. Product liability and consumer protection.
3. Social opportunities.
4. Animal welfare and antimicrobial resistance.

Question 6

What is Platform Living Wage Financials?

Answer 6

The Platform Living Wage Financials (PLWF) was established at the end of 2018. This is a COLITION of (mainly Dutch) financial institutions that encourage and monitor investee companies to address the non-payment of a living wage in their global supply chains.

The investor coalition has over
€2.6tn (£1.9tn) of assets under management and uses its influence and leverage to engage with its investee companies. They:
1. measure their performance on living wage;
2. discuss the assessment results; and
3. support innovative pilots.

Finally, they make sustainable investment decisions based on (the lack of) progress subject to individual choices and policy preferences of each member of the platform.

Question 7

4.1.4 Assess material impacts of social issues on potential investment opportunities, including the dangers of overlooking them:

changing demographics, including health and longevity;
digital disruption, social media and access to electronic services; individual rights and responsibilities;
family structures and roles;
education and work;
distinction between faith-based ESG investing and exercise of religion as a social factor;
inequality;
globalization.

Answer 7

material IMPACTS of social issues ON potential investment opportunities, including the dangers of overlooking them

Question 8

4.1.5 Identify approaches to social analysis at

country, sector and company levels

in both developed and emerging economies.

Answer 8

IDENTIFY approaches to social analysis

at country, sector and company levels

in both developed and emerging economies.

Question 9

What are included in The social megatrends?

Answer 9

The social megatrends have a rather broad range, and include:

a. globalization;
b. automation and AI in manufacturing and service sectors;
c. inequality and wealth creation;
d. digital disruption and social media;
e. changes to work, leisure time and education;
f. changes to individual rights and responsibilities and family structures;
g. changing demographics, including health and longevity;
h. urbanization; and
i. religion.

Question 10

What are included in Environmental megatrends with social impact?

Answer 10

Environmental megatrends with social impact include:

a. climate change and transition risk;

b. water scarcity; and

c. mass migration.

Question 11

How to conduct
Analysis of social factors impacts
from an investment point of view?

Answer 11

Countries, sectors and companies are not affected equally by the different social megatrends and social factors.

1. The analysis should start with an understanding of materiality at the geographical and industry levels.
2. Once this is established, the company-level exposure can be determined by looking at the sector it operates in and which
   countries or regions it mostly operates in (looking at locations of key suppliers, plants, customers and main tax jurisdictions).
3. Having identified which social factors are relevant for a particular company, analysts will assess the way the company manages the risks and opportunities associated with these social factors, compared to its peers.

Question 12

How to conduct
Analysis of social factors impacts
from an investment point of view?

Answer 12

Countries, sectors and companies are not affected equally by the different social megatrends and social factors.

1. The analysis should start with an understanding of materiality at the geographical and industry levels.
2. Once this is established, the company-level exposure can be determined by looking at the sector it operates in and which
   countries or regions it mostly operates in (looking at locations of key suppliers, plants, customers and main tax jurisdictions).
3. Having identified which social factors are relevant for a particular company, analysts will assess the way the company manages the risks and opportunities associated with these social factors, compared to its peers.

Question 13

What to look at when analysts assess the way the company manages the risks and opportunities? (social factors impact)

Answer 13

This includes looking at:

1. corporate strategy;
2. policies in place;
3. processes and measures implemented;
4. performance indicators; and
5. public disclosure.

Question 14

What to look at for this investment process? (social factors impact)

Answer 14

This process involves looking at:
1. current performance;
2. progress over time; and
3. how that progress compares to industry averages and key competitors.

Increasingly, investors are
integrating social factors into the ratio analysis or financial models
of investee companies
to gain a better understanding of the potential
impacts of social factors on a company’s financial performance.

Question 15

What is a ‘just’ transition?

Answer 15

A widespread call is that the transition should be a ‘just’ transition.

In the process of adjusting to an economy that does not adversely
affect the climate, sectors that employ millions of workers (such as energy, coal, manufacturing, agriculture and forestry) must restructure.

It is feared that the period of economic structural change will result in ordinary workers bearing the costs of the transition, leading to unemployment, poverty and exclusion for the working class.

A transition that shares the financial and social burden in a fair way.

Question 16

What is FAIRR?

Answer 16

A growing investor initiative, which is focused and engaged on the risks and opportunities linked to intensive livestock production is Farm Animal Investment Risk and Return (FAIRR).

FAIRR focuses particularly on the increased prevalence of antimicrobial resistance due to intensive farming practices and poor antibiotic stewardship.

Companies operating in these ways are more likely to face lawsuits and pressures to change their practices.

Question 17

What are the two guidelines with respect to human rights that have a direct impact on companies and investors?

Answer 17

There are many different guidelines with respect to human rights. However, two have a direct effect on companies, and investors:

▶ The United Nations Guiding Principles on Business and Human Rights (UNGPs); and

▶ The OECD Guidelines for Multinational Enterprises (MNEs).

Question 18

What are the three pillars outlining how states and businesses should implement the framework from UNGPs?

Answer 18

The UNGPs encompass three pillars outlining how states and businesses should implement the framework:

1. the state duty to protect human rights;
2. the corporate responsibility to respect human rights; and
3. access to remedy for victims of business-related abuses.

Question 19

What are the OECD Guidelines for Multinational Enterprises?

Answer 19

The OECD Guidelines for MNEs are a comprehensive set of government-backed recommendations on responsible business conduct.
The governments adhering to the Guidelines aim to encourage and maximize the positive impact MNEs can make to sustainable development and enduring social progress.
The Guidelines are important recommendations addressed by governments to multinational enterprises operating in or from
adhering countries.
They provide voluntary principles and standards for responsible business conduct in areas such as:

1. employment and industrial relations;
2. human rights;
3. environment;
4. information disclosure;
5. combating bribery;
6. consumer interests;
7. science and technology;
8. competition; and
9. taxation.

Question 20

What are two examples from Globalization implication?

Answer 20

Examples of its implications include:

▶ Offshoring. Due to the lower wages of workers in the garment industry in developing countries, clothes are now mainly produced in countries such as Vietnam, Bangladesh and China. This has led to the disappearance of the textile industry in Western countries. Offshoring also takes place in other sectors.

▶ Dependency. As US-based and Asian companies dominate the industry for mobile telephones, computers and other IT products, European countries are more dependent on these suppliers.

Question 21

What is FPIC?

Answer 21

Free Prior Informed Consent
A company that plans to develop on ancestral land or use resources of a territory owned by indigenous people, should establish FPIC:

▶ Free simply means that there is no manipulation or coercion of the indigenous people and that the process is self-directed by those affected by the project.
▶ Prior implies that consent is sought sufficiently in advance of any activities being either commenced or authorized, and time for the consultation process to occur must be guaranteed by the relative agents.
▶ Informed suggests that the relevant indigenous people receive satisfactory information on the key points of the project, such as:
» its nature;
» its size;
» its pace;
» its reversibility;
» the scope of the project;
» the reason for it; and
» its duration.

This is the more difficult term of the four, as different groups may find certain information more relevant. The indigenous people should also have access to the primary reports on the economic,
environmental and cultural impact that the project will have. The language used must be able to be understood by the indigenous people.

▶ Finally, consent means a process in which participation and consultation are the central pillars.

Question 22

What is Access to Medicine Index tool?

Answer 22

Access to Medicine Index is a tool that analyzes how
20 of the world’s largest pharmaceutical companies are addressing access to medicine in
106 low- to middle-income countries for
82 diseases, conditions and pathogens,
evaluating them in areas where they have the biggest potential and responsibility to make change, such as research and development (R&D) and pricing.

Question 23

What is Corporate Human Rights Benchmark?

Answer 23

The Corporate Human Rights Benchmark (CHRB) is a collaboration led by investors and civil society organizations dedicated to creating the first open and public benchmark of corporate human rights performance.

The CHRB provides a comparative snapshot year-on-year of the largest companies on the planet, looking at the policies, processes and practices they have in place to systematize their human rights approach and how they respond to serious allegations. Initially, only companies from three industries – agricultural products, apparel
and extractives – were chosen on the basis of their size and revenues.
The measurement themes and indicators within the CHRB provide a truly rigorous and credible proxy measure of corporate human rights performance, which can be used by analysts and investors.

The themes consist of multiple questions that are listed in the
report. They are:
1. governance and policy commitments;
2. embedding respect and human rights due diligence;
3. remedies and grievance mechanisms;
4. performance – company human rights practices;
5. performance – responses to serious allegations; and
6. transparency.

Question 24

What are included in labor rights?

Answer 24

Labour rights
Assessing how companies uphold labour rights is important for investors to gain insights into the corporate culture and the level of employee satisfaction.
The most important labour rights have been summarised in International Labour Standards. These are aimed at promoting opportunities for women and men to obtain decent and productive work, in terms of freedom, equity, security and dignity, and are included in the fundamental conventions of the International Labour Organization (ILO).
These include:
1. freedom of association and protection of the right to organise;
2. right to organise and collective bargaining;
3. forced labour and abolition of forced labour;
4. minimum age;
5. worst forms of child labour;
6. equal remuneration; and
7. discrimination (employment and occupation).

Question 25

What are EU taxonomy for sustainable activities?

Answer 25

The EU taxonomy sets performance thresholds for economic activities that make a substantive contribution to one of six environmental objectives:

1. climate change mitigation;
2. climate change adaptation;
3. sustainable and protection of water and marine resources;
4. transition to a circular economy;
5. pollution prevention and control; and
6. protection and restoration of biodiversity and ecosystems.

The activity should
1. substantially contribute to one of the objectives to become taxonomy-aligned,
2 .whilst doing no significant harm to the other five, where relevant, and
3. comply with minimum safeguards (e.g. OECD Guidelines on MNEs and the UN Guiding Principles on Business and Human
Rights).

Question 26

Social factors impacting two groups of stakeholders.
external stakeholders
internal stakeholders

Answer 26

Social factors can also be categorized between those impacting external stakeholders (such as customers, local communities and governments) and groups of internal stakeholders (such as the company’s employees).

SOCIAL FACTORS THAT IMPACT INTERNAL STAKEHOLDERS
Human capital development.
Working conditions, health and safety.
Human rights.
Employment standards and labour rights.

SOCIAL FACTORS THAT IMPACT EXTERNAL STAKEHOLDERS
Stakeholder opposition and controversial sourcing.
Product liability and consumer protection.
Social opportunities.
Animal welfare and antimicrobial resistance.

Question 27

The most important foundation for international human rights is the Universal Declaration of Human Rights (UDHR). This declaration was proclaimed by the United Nations General Assembly on 10 December 1948 by General Assembly resolution 217A and is a common standard of achievements for all peoples and all nations.

Answer 27

Human rights include, for example:
1. the right to life and liberty; 2. freedom from slavery and torture;
3. freedom of opinion and expression; and
4. the right to work and education.
Everyone is entitled to these rights, without discrimination.

Human rights violations usually occur deep within supply chains. Companies to which major investors most often have direct exposure, and even their first and second tier suppliers, are less likely to be directly implicated in such practices. For example, in the garment industry, it is more likely that human rights violations will take place in emerging countries where clothing is produced, rather than at the stores where the clothing is being sold. However, both clients and governments expect companies to take responsibility for activities within their supply chain.