Chapter 4: Social factors Flashcards
What are social megatrends?
Long-term social changes that affect governments, societies, and economies permanently over a long period of time:
- Globalization
- Automation and Artificial Intelligence
- Inequality and wealth creation
- Digital disruption, social media and access to electronic devices
- Changes to work, leisure and education
- Changes to individual rights, responsibilities and family structures
- Changing demographics, including health and longevity
- Urbanisation
- Religion
Where should investors start when they decide to implement social factors in their investment decisions?
- Determine which social factors are most controversial or financial material in each sector
- Assess exposure of companies to these sector-specific factors - depending on business model, location, operations
- Assess social factors in supply chain
What are the OECD guidelines for multinational enterprises and what issues do they address?
- Governmental-backed recommendations (voluntary standards and principles) on responsible investment conduct in areas such as
l Employment and industrial relations
l Human rights
l Environment
l Information disclosure
l Combating bribery
l Consumer interests
l Science and technology
l Competition
I Taxation
What are Corporate Human Rights Benchmarks?
- Governance and policy commitments
- Embedding and respecting human rigthts in due diligence
- Remedies and grievances systems
- Performance of companies human rights practices
- Response to serious allegations
- Transparency
What are the International Labor Rights?
- Freedom of association and protection of right to organise
- Right to organise and collective bargaining
- Abolition of forced labour
- Minimum age
- Child labour
- Equal renumeration
- Discrimination
- Nothing on living wage
What does Free Prior Informed Consent mean in practice?
- Way to establish bottom up participation
A company that plans to develop on ancestral land or use resources of a territory owned by indigenous people should establish FPIC.- FREE - No coercion of indigenous people - PRIOR - Consent is sought sufficiently in advance of any activity - INFORMED - Satisfactory information on key points of the project, including § Nature § Size § Pace § Reversibility § Scope § Reason § Duration - CONSENT - Process in which participation and consolations are central pillars
What is product liability?
- Legal responsibility of business or manufacturer selling defective goods
l Design flaws
l Manufacturing defects
I Failure to warn of possible danger
What is consumer protection?
- Refer to laws and other forms of government regulation designed to protect rights of consumers
l Product safety
l Distributing consumer-related information
I Preventing deceptive marketing
What are the United Nations Guiding Principles on Business and Human Rights?
- First global for preventing and addressing the risk of human rights linked to business activity
- Three Pillars how states and business should implement the framework
1. The state’s duty to protect human rights
2. Corporate responsibility to respect human
rights
3. Access to remedy for victims of business
related abuses
What are likely impacts of social factors that should be taken into consideration for company assessment?
- Ratio analysis and financial modelling
l Health and safety violations can result in
fines and liabilities
l Poor human capital management can lead
to greater operating costs and high turn-
over
l Supply chain issues can impact brand
reputation
l Protest can lead to local disruptions
I Poor working condition can lead to poorer
product safety
Why is social materiality assessment important?
Not all countries, sectors and companies are affected equally by the different social megatrends and social factors
What are internal social factors?
- Human resources
- Health and safety
- Human rights
- Labour rights
- OECD Guidelines for Multinational Enterprises
- Corporate Human rights Benchmark
- UN Guiding Principles on Business and Human
rights
What are external social factors?
- Stakeholder opposition
- Controversial sourcing
- Free Prior Informed Consent
- Product liability
- Consumer protection
- Social opportunities
- Animal Welfare
- Anti-microbial resistance
What is the FAIRR Initiative?
Farm Animal Investment Risk & Return
- Focused & engaged on risks and opportunities linked to intensive livestock production
- Focuses on increased prevalence of antimicrobial resistance due to intensive farming practices and poor antibiotic stewardship
Which human rights guidelines / principles have a direct impact on companies and investors?
1) United Nations Guiding Principles on Business and Human Rights (UNGPs)
2) OECD Guidelines for Multinational Enterprises (MNEs)
Is religion a social megatrend?
YES.
Changing religious landscape around the world has consequences for consumer preferences.
Religion-based politics and conflicts can also have a profound impact on specific local economies
Where is forced labour most likely to occur?
Modern slavery / forced labour CAN take place anywhere (private, public, informal, formal mktplaces)
Typically occurs in industries where:
- Poor regulation
- Production process requires many workers
No fewer than 25 million people are estimated to be in forced labour
Is Technological Disruption a social megatrend?
YES.
Digital disruption is change that occurs when new digital technologies and business models affect the value proposition of existing goods & services
It’s not new
What does the Corporate Human Rights Benchmark focus on? (CHRB)
CHRB provides comparative snapshot yeara-on-year of the largest companies on the planet, looking at:
- Policies
- Processes
- Practices
that they have in place to systematize their human rights approach and how they respond to serious allegations
What are the OECD Guidelines of MNEs?
OECD Guidelines of MNEs are a comprehensive set of government–backed recommendations on responsible business conduct
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 interest
7) Science and technology
8) Competition
9) Taxation
What are the United Nations Guiding Principles on Business & Human Rights (UNGPs)?
(3)
1) The state duty to protect human rights
2) The corporate responsbiility to respect human rights
3) Access to remedy for victims of business-related abuses
Examples of internal vs external social factors
Internal:
- Gender balance
- Employee satisfaction
- Pay ratios
- Labour standards
External:
- Tax payments
- Sourcing local
- Customer relations
What is the Bangladesh Investor Initiative?
- Addresses ‘Health & Safety’
- comprised of 250 institutional investors representing $4.5 trillion USD AUM formed in May 2013.
- was formed in response to Rana Plaza disaster
What is the current estimated amount of people in forced labour?
25 million
What is the Access to Medicine Index?
Anlayzes how 20 of the world’s largest pharmaceutical companies are addressing access to medicine, especially to low-to-middle income countries
- 106 low-to-middle income countries for 82 diseases, conditions, and pathogens
- Companies are evaluated in areas where they have biggest potential and responsibility to make change such as R&D and pricing
Examples of environmental social megatrends
- Climate change & transition risks
- Water scarcity
- Mass migration
According to OECD, average income of richest 10% how many times larger than poorest 10%
According to OECD Centre for Opportunity and Equality (COPE):
- Average income of top 10% is 9 times higher of poorest 10% across OECD
What impacts does aging population have on society?
1) Ratio between active and inactive part of woorkforce drops, impacting national tax revenues and challenging pension systems, including an impact on pension pots that need to last longer
2) Older people have higher accumulated savings per person than younger peopoe, but spend less on consumer goods, which is a business risk for some industries
In some categories, such as healthcare, expenditure rises sharply when populations age…
What are some scenarios taking into account for social factor analysis?
1) Occupational health & safety issues (accident and fatalities)
2) Human capital management issues
3) Supply chain issues
4) Local protests
5) Poor working conditions
What is meant by ‘Just Transition’
A transition that shares the financial and social burden fairly
What are the main safeguards of Consumer Protection?
1) Enforcing product SAFETY
2) DISTRIBUTING consumer-related information
3) Preventing DECEPTIVE MARKETING
What are the fundamental conventions of the INTERNATIONAL LABOUR ORGANIZATION (ILO)? (7)
1) Freedom of association and protection of the right to organize
2) Right to organize and collective bargaining
3) Forced labour and abolition of forced labour
4) Minimum age
5) Worst forms of child labour
6) Equal remuneration
7) Discrimination (employment and occupation)
Who should Health & Safety performance indicators be assessed for?
Both:
Permanent employees &
Contractors
Trends for women in the workplace
- More women are entering labour market
However:
- Women are more likely to become and remain unemployed
- Often have to accept lower quality jobs
- Face wage gaps compared to men
Impacts of growing inequality
- Inequality has wide-ranging impacts on economies & societies
- Educational opportunities reduced
- Social mobility reduce
- Results in less skilled and less healthy society w/ lower purchasing power among lower & middle classes
- Limits economic growth
What are the three main types of product liability?
1) Businesses being found liable to consumers when a court finds design flaws
2) Manufacturing defects
3) Failure to warn consumers of a possible danger
What are the social considerations related to EU Taxonomy?
Activity should substantially contribute to one of the objectives to become taxonomy-aligned, whilst doing no significant harm to the other five, where relevant, and comply with minimum safeguards (OCED Guidelines on MNEs and UN Guiding Principles on Business & Human Rights)
What is offshoring?
Producing goods in low-income countries due to lower wages
