Chapter 4 Social factors

Question 1

What are the social megatrends ?

Answer 1

Long term social changes that affects governments, societies, economies over a long period of time. Apart from classical social trends like (Globalisation, AI, Inequality, social medias, urbanisation) there are environmenta trends such as mass migration, water scarcity, climate change and transition risks.

Question 2

Trend: Globalisation

Answer 2

Integration of local economies into global economy -?cross boader movement of goods , people, technologies.

Positive impact -> better efficiency
Negative -> social structural inequality

Offshoring - clothing mainly produced in Asia
Dependancy - IT in US, EU are more dependent on these suppliers

Question 3

Trend: technologies and AI

Answer 3

Processes are perfromed with lower human assistance

Positive -> lower labour cost
Negative ->replacement of workers

Major sectors affected by AI: healthcare, automative, financial services, security (military), creative (gaming, advertising)

Question 4

Trend: inequality

Answer 4

According to OECD 10% richest have income 9x more than 10% poorest
Higher inequality -> lower mobility and educational opportunities -> limits for economic growth

Question 5

Trend: digital distruption, social media, electronic devices

Answer 5

Nothing specific, set of innovations create risks and opportunities.

Question 6

Trend: Change of work

Answer 6

Average working time decreased, remote work increases, level of eduction increased, scarcity of employees in particular sector increased. Analyst should understand employee trends within industry and how companies fight with them.

Question 7

Trend: change to individual rights

Answer 7

More woman in workplace but still, wage and gender gaps.

More diverse workforce lead to better economic performance.

Question 8

Trend: Changing demographics

Answer 8

Live expectancy increased, median age increased (in UK 41 in 2015, forecast 45 by 2050)

Question 9

Trend: Urbanisation

Answer 9

By 2050 68% population will live in cities. 3 implications: economic, environmental, social

Question 10

Trend: Religion

Answer 10

Christian and Muslim investors

Question 11

How investor should implement social factors into investment analysis

Answer 11

1. Determine social factors that are most relevant for the industry
2. How company exposed to these factors
3. Identify critical social factors in supply chain

Question 12

What are the key social factors, that investor should consider ?

Answer 12

Internal
1. Human Capital Development
Company should equip emploees, operate within regulation, keep emploees motivated.

Investor should check:

1. Identify skills to execute company’ strategy and skill shortage (war on talent)
2. whether the company developed attractive value proposition
3. does the business develop measures to monitor investment in human capital
4. Working condition
   Safety
5. Human Rights
   UDHR (UN) Human Rights violation most often in supply chain rather then in target company. H&M good, but suppliers in Bangladesh not good
6. Labour rights

Question 13

What are the guidelines exist with respect to human rights

Answer 13

UNGP by United Nation - first global set of principles to prevent adverse impact on human rights linked to business activity. Framework:

1. Duty of state
2. Corporate responsibility
3. Access to remedy for victims of business related abuses.

OECD principles for multinational enterprises:
Governments adhering to principles aim to encourage social progress.

it is important that these guidelines do not focus on the impact social factors can have on the investments (financial materiality). Many investors convinced that these guidelines require govenments and investors to adopt double materialty and take into account social return on investment

Question 14

What is Corporate Human Rights Benchmark?

Answer 14

CHRB - snapshot year - on - year of the largest companies on priactices and policies they have to systemitise human rights approach. They provide indicators of corporate human right performance.

Question 15

How Labour Rights are regulated ?

Answer 15

Major document - International Labour Standard. It includes 7 key elements promoting gender opportunities, obtain decent and productive work, freedom and security .

One of major right is freedom of association (help with better protection of basic rights such as labour rights, forces and child labour, descrimination)

Other is modern slavery and living wage

Question 16

What are the key external factors?

Answer 16

1. Stakeholder opposition (SO) and controversial sourcing (CS).
   SO - all stakeholders and local communities should be happy to avoid protest and disruptions.
   CS - issue for companies with suppliers operating in emerging economies. Companies enjoy cheap products from suppliers -> risk for their reputation.

Both risks create significant reputational risks

2. Product liability and consumer protection
3. Social opportunities (education, medicine, utilities etc.)
4. Animal welfare and antimicrobial resistance. Companies operating in industries heavily relying on intensive farming practices likely face lawsuits and pressures to change their practices.

Question 17

What is EU Taxonomy again?

Answer 17

EU taxonomy it is initiative in EU to promote sutainable development. if company align with on of 6 six key principles and does no violate 5 other + comply with minimum safeguards (for example OECD guidelines for ME, discussed above) ot can be considered as EU taxonomy alligned and get access to green funding ans new product

Question 18

Identifying material social factors on different level

Answer 18

Analysing which social factors are material from investment point of view should be on country, sector and company level. On country level important to recognise social trends and different regulation (in EU Taxonomy, in UK Slavary act)

Most factors influence company’s bottom line, increase workforce issues, decrease corporate responsibility (human rights) and its consumer expectations (animal welfare).