Getting back on track to reduce global poverty

ESG has gained great momentum in 2022. Investors increasingly opt to direct their money towards funds that do good, and many welcome this growing interest as the evolution of stakeholder capitalism. But while environmental corporate pledges have multiplied, the world’s goal of eradicating extreme poverty by 2030 is unlikely to be met. 

Set backs to poverty reduction

The first priority for the United Nations’ Sustainable Development agenda was agreed by 193 nations in 2015, and progress was made. During the three decades prior to Covid, more than one billion people escaped extreme poverty, and by 2015, the global extreme poverty rate had been halved. 

But in 2020 the pandemic reversed this. The aftermath of an extraordinary series of shocks to the global economy; including the Ukraine war, rising food and energy prices, and natural disasters, have caused the largest setback to poverty reduction since the Second World War according to a report by the World Bank. In 2020 alone, the number of people living below the extreme poverty line rose by over 70 million. The report predicts that, “given current trends, 574 million people—nearly 7 percent of the world’s population—will still be living on less than US$2.15 a day in 2030, with most in Africa.”

Earlier this year think-tank the Social Market Foundation (SMF) shared analysis revealing the most recent annual reports of all FTSE-100 firms put far more focus on the environmental and governance elements of ESG than on their social responsibilities. More than half (53%) of FTSE 100 companies failed to mention the word poverty in their annual reports for 2019 to 2020. The SMF said their analysis shows that the “S” in ESG is being overlooked, calling on businesses to pay more attention to poverty among their workforce, supply chain, and community.

The importance of a living wage

‘The case for living wages’ research paper (of 2022) indicates that globally, 630 million people are in working poverty, earning under US$3.20 per day in terms of Purchasing Power Parity (PPP). Poverty has been linked to numerous quality-of-life issues such as poor health, crime rates, addiction, educational achievement gaps, and more. Furthermore, poverty can have a significant impact on local communities; when individuals have access to higher incomes they tend to circulate that money back into their local economies which helps promote economic growth and development. 

A living wage across the value chain is also integral to avoiding poverty because it ensures people are able to make ends meet while also allowing them to save for the future. When companies pay their employees a living wage it not only allows them to invest in their communities through job creation but also provides them with the tools necessary for upward mobility. A fair pay system helps strengthen social bonds within a community which contributes positively towards its overall wellbeing. 

Good for business

In addition to helping alleviate poverty and provide financial stability for communities and individuals alike, ensuring employees are paid a living wage also promotes better working conditions for employees. This includes creating a safe work environment, as well as providing access to benefits such as healthcare and holiday packages that enhance employee satisfaction and productivity levels. The Living Wage Foundation reports that 93% of living wage businesses benefit through improved reputation, increased motivation and retention rates, distinguishing competition differentiation, and improved manager-staff relations.

Ultimately, taking into account the factors of poverty and living wages in an ESG strategy is crucial for promoting corporate sustainability while also lifting local communities. Through active engagement with companies on promoting decent work, specifically living wages, asset managers can encourage companies to focus on the ‘triple bottom line’ of people, planet and profit. In incorporating these elements into their investment decisions, companies are demonstrating not just their commitment to the environment but social justice as well. It is this holistic approach to the three pillars of ESG that is needed to affect real world change in line with the UN Sustainable Development Goals.

 

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