These Three Companies Put the ‘S’ in ESG by Placing a High Priority on People

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The “S” in ESG is for the ill-defined “social,” a catchall for nonfinancial factors not related to governance or the environment. A subset of the S is rapidly emerging as a key factor in sustainable investing—how companies manage their “human capital.”
The relationship between stock performance and how companies recruit and treat their employees was gaining attention even before the pandemic and protests; now it stands as a defining factor in environment, social, and corporate governance, or ESG, considerations. “Our entire economy is shifting to an information economy, and therefore people are ever more important to company outcomes,” says John Streur, president and CEO of Calvert Research and Management.
Unlike governance and environmental factors, social pillars—including human capital—are tough to track. Companies aren’t required to disclose data on workforce composition, gender, or ethnicity, but that could change. In 2019, the Securities and Exchange Commission proposed mandating human-capital disclosures for publicly traded companies, and SEC Chairman Jay Clayton has said this is an area where the SEC should move forward.
“There’s no line item for the treatment of a company’s human capital, but we’ve learned that how a company treats what is likely its largest asset determines the success or failure of that firm for the long haul,” says Malcolm Ryerse, head of stewardship at Columbia Threadneedle Investments.
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It might be a lot to ask employees to be happy, particularly in light of the pandemic, but still other research shows that engaged employees tend to be more productive—and they’re more apt to stick around. Companies pay a high toll for turnover. The Work Institute estimates that voluntary employee turnover costs U.S. companies more than $600 billion a year, or about $15,000 for the average hire.
Diversity, equality, and inclusion are critical parts of retention and overall performance. “In general, we know that diverse teams are more innovative—stronger at anticipating shifts in consumer needs and consumption patterns that make new products and services possible, which can create competitive advantages,” says Dan Rourke, an ESG senior research analyst at Calvert.
It’s difficult to make apples-to-apples comparisons between companies, and no organization is perfect. “You need to triangulate the information,” says Rob Wilson, a research analyst at MFS Investment Management, which has been nudging companies to improve voluntary disclosures. Yet many companies, including these three, have taken steps in the right direction—and have already seen measurable results.
An Early Equality Initiative
When Best Buy (ticker: BBY) opened its first Teen Tech Center in Minneapolis, in 2013, the initiative was purely focused on community impact: Give teens from disinvested communities access to tools and training to be prepared for tech-reliant jobs of the future.
Today, there are more than 30 such centers around the country, each serving 250 to 300 youths every year, and Best Buy has plans to bring that number to more than 100. The centers are a launch pad for jobs, internships, scholarships, and the Geek Squad Academy, a free summer camp for youth in disinvested communities. They also go beyond computer and internet access and now offer resources for filmmaking, music production, and design, and include collaborations, such as with Sony . Nvidia Verizon Communications
The initiative has evolved, and is as much part of the company’s corporate strategy as it is a philanthropic side project. “It’s now one of our signature programs,” says Andrea Wood, Best Buy’s head of social impact.
Though the intent is to provide resources and opportunities for teens, it offers a double bottom line. “There’s an economic benefit to the company by effectively expanding its potential client base and employee base,” says Columbia Threadneedle’s Ryerse, who is based in Minneapolis, near Best Buy’s Richfield, Minn., headquarters. “The data continue to show that, particularly among younger generations, people are attracted to firms that have values that are consistent with their own.”
The company sees the tech centers as a great way to develop and recruit talent and further engage existing employees, many of whom want to work for a company that is making an impact. “When we talk about stakeholder capitalism, this is probably on...