ESG strategy through the Cost of Living Crisis

Money Stock photos by Vecteezy

With the highest rates of inflation in decades, high interest rates and a collapse in the value of the pound, the UK is experiencing a cost-of-living crisis that will affect millions of working people. Communications consultancy SEC Newgate’s annual Global ESG Monitor revealed that when it came to the top three priorities for the UK’s future, 52% of survey participants gave highest priority to the rising cost of living (compared to 32% to ensuring affordable energy and fuel supplies, and 20% to secure and affordable food supplies). SEC Newgate chief executive, Emma Kane said the findings showed that the UK is “veering off course” in terms of ESG prioritisation.

Disproportionately impacting the lowest paid, and exacerbating the issue of growing inequality, the crisis presents a long-term risk to portfolios and the wider economy, therefore sitting firmly within the ‘social’ element of employer environmental, social and governance (ESG) strategies.

Supporting employees

Ultimately there are two ways employers can provide support with the cost of living; increase employees’ pay or reduce their costs.

Recently CCLA Investment Management and the Church Investors Group (CIG) found many large companies are offering insufficient support. Just 25 companies of the 58 they asked confirmed that they are accredited real living wage employers. The Living Wage Foundation ‘Life on Low Pay’ report reinforces this shortfall, estimating 4.8 million workers earning a wage below the cost of living. 

According to Martin Buttle, CCLA’s better work lead, companies with a high proportion of low-paid staff, such as food production, hospitality and retail, were the ones where the support was weakest.

Workforce impact

Of the Living Wage Foundation’s estimated 4.8 million workers earning below the cost of living, 42% are reporting missing meals regularly due to financial reasons and 56% report using food banks regularly. During the winter months record levels of winter deaths are likely as people are facing bleak choices such as whether to ‘heat or eat’.

Mental health is being significantly impacted, already estimated to have cost the UK private sector between £53-56bn in 2020-21. In business terms this means reduced productivity, higher turnover and increased training costs and even industrial disputes, including strike action.

A coalition of 17 firms (including CCLA), representing £3.2trn in assets under management, have recently signed a joint investor statement urging investor companies to:

• Prioritise providing support for their lowest paid employees including but not limited to uplifting pay for the lowest paid workers and considering the provision of one-off cost-of-living support. Where possible, we encourage companies to meet the new real Living Wage rates which we consider best practice.

• Work constructively and bargain in good faith with workers and their unions to reach agreements on pay claims to avoid prolonging any potential disruption.

• Proactively engage with third party contractors to ensure support is being provided for staff that work on the company’s premises.

• Where possible, be cognisant of pricing of key goods and services on which people are reliant.

• Publicly state how they intend to support workers and consumers over the foreseeable future and agree to provide a regular update at least once in six months, given the unpredictable and long term nature of the crisis.

They also ask to approach remuneration and reward in a proportionate way, weighting support to those on lowest incomes and showing restraint when determining executive pay.

Striking the right balance

The cost of living crisis is driving the human aspects of ESG to the fore. Engagement with portfolio companies is crucial to ensure they adequately balance their own commercial interests with the need to support employees, particularly those on lower pay. The issue must be reflected in voting policies as we head into the 2023 proxy season, and those companies failing to act should be held to account.

With SI Engage you’ll be able to record and track activity across your portfolio companies, streamlining huge amounts of data for positive change.