What’s so wrong with ‘woke’?
ESG investing and focus on equality, human rights can reduce risk — and be profitable, too
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Somehow being ‘woke’ has become a bad thing — at least among some U.S. politicians worried about how people dress or choose their pronouns while the world burns.
Among their recent targets is ESG (environmental, social and governance) investing.
One North Dakota politician went so far to call this kind of investing “a worldwide human satanic plot.”
Of course, much of the pushback against ESG revolves around climate change driven initiatives, or the ‘E’ in ESG.
But there is also pushback about the growing focus on the ‘S’ pertaining to human rights, and equity, diversity and inclusion (EDI).
Investors, however, have good reasons for seeking out companies that address social concerns.
Not only is ‘woke’ a good thing because investing in companies that foster gender parity, take care of communities in which they operate, and don’t trample human rights to make a quick buck the right thing to do.
It’s just good investment sense.
Companies that do good tend to do well.
“Social factors play an important role in a company’s long-term financial performance, reputation and success,” says Agnes Balcerzak, a Winnipeg-based certified financial planner and responsible investment specialist with IG Wealth Management.
She notes that a company with poor practices regarding workplace safety or Indigenous engagement can lead to a variety of negative outcomes for its bottom line.
“A company may face legal and reputational risks, reduced productivity and customer demand” to name a few that can lead to “poor financial performance,” she says.
Still, measuring the ‘S’ has proven challenging for investors, as noted in a 2022 article from the Stanford Social Innovation Review.
The report highlighted many reasons why investors should pay attention, including on issues like racial equality. Companies that focus on being more racially inclusive in their workforce and make their products and services more equitably accessible to all communities are more likely to see better sales, partnerships and competitive positioning, it noted.
Financial institutions and large fund managers are also paying more attention than ever and seeking data to track social factors, as well as environmental and governance, to understand how performance on these fronts connects with profitability.
“Forget the rhetoric and politicization, these issues boil down to if you are going to give a company your money, what is it going to do to ensure it treats your money well?” says Laurie Clark, founder and chief executive officer of Onyen, an ESG reporting software company based in Toronto.
Clark is among Canada’s most successful women entrepreneurs — who previously founded a technology company that helped shape how securities are bought and sold today around the world.
More recently, she co-founded Onyen because she saw a need for investors and companies seeking investor dollars to be able to better harness ESG information — including hard-to-track social information — and measure how it may affect financial performance.
“We have the ability to do predictive scoring so a company knows in real-time on issues like pay equity exactly how it will be viewed by the investors and regulators,” she says.
Generally speaking, many Canadians are concerned about their investments’ impact on social issues too.
A recent survey sponsored by Onyen found 70 per cent of respondents agreed it is important to buy from or invest in companies with strong policies for labour, diversity and inclusion, and equitable salaries for women and minorities.
Similarly, a recent Mackenzie Investments’ survey found more than eight of 10 respondents feel it is important to use their investment dollars to bring about positive societal change.
Head of sustainability at Mackenzie Fate Saghir notes social factors are often very much the bridge between environmental and governance concerns.
“There is strong linkage with social issues with the other two factors,” she says, citing reconciliation with Canada’s Indigenous peoples is a social metric for many Canadian firms that connects with environmental concerns (i.e. resource development).
“For organizations like ours, the S is more or less like table stakes,” she says, noting Mackenzie’s investment teams consider performance on social issues like they would any other key metric to evaluate a company.
Even Forbes, not exactly a publication associated with ‘wokeness,’ found evidence that companies with more diverse teams make better business decisions 87 per cent of the time compared with those firms with less diverse teams.
Research on outperformance is still in its infancy, but companies are getting better at measuring the impact of social factors, recognizing that avoiding controversy on these issues likely mitigates financial risk, Saghir says.
Yet perhaps Balcerzak sums up best why it may prove worthwhile to give credence to social factors when selecting investments.
“Companies that prioritize social responsibility and sustainability are more likely to attract more qualified employees, customers and investors who share similar values and are committed to building a more sustainable, profitable and equitable future for all.”
In other words, wake up and smell the future of profitability.