What about the “S” in ESG? - COVID-19 raises need for greater transparency

May 21, 2021

Transparency in reporting on social issues is a powerful way for businesses to build trust, create accountability, show leadership, and move the dial on seemingly indelible industry-wide issues. It is also a key factor for ESG investors who want to show alignment with increasingly stringent ESG regulations.

The EU regulations, or “SFDR”, for example, includes 16 mandatory social metrics regarding respect for human rights, anti-corruption, and anti-bribery matters. While the UK and US are still working towards their own versions of SFDR, it’s clear that the governance of Social issues is here to stay. It’s clear from the responsible investment disclosures of leading asset owners such as NEST, the National Employment Savings Trust, that investors are increasingly considering the reputational and operational risks of public reporting (and lack thereof) within their core investment risk-opportunity matrices.

While regulations are pushing ahead, investors depend on high quality data to take an informed view. In this first edition of a three-part series, Áine Clarke of The Workforce Disclosure Initiative sheds some light on the latest developments in corporate transparency on social issues, based on the insights gleaned from their 2020 survey.

The 2020-2021 fiscal year presented unique challenges and opportunities for corporate workforce transparency. COVID-19 has highlighted the link between good workforce management and business resilience. Understanding the workforce, and transparency around management and working conditions throughout the value chain is crucial to prudent investors seeking stable returns.

As the importance of workforce transparency rises under the pandemic, fund managers such as Nest rely on WDI for information on company disclosures. In 2020, 141 companies took part in the WDI survey, a 20% increase compared to the 2019 survey. The average public disclosure rate also increased from 20% in 2019 to 80% in 2020.

However, transparency doesn’t necessarily equate to good practice. Companies tend to prioritise information on general initiatives in their disclosures, rather than providing detailed insights into how they are managing their workforce.  For example, companies have recognised the importance of effective workforce management for recovering from the effects of the COVID-19 pandemic but have not reported on the implementation of COVID-19 response plans.

Indeed, 88 per cent of companies explained their approach to workforce, supply chain and business resilience during the COVID-19 pandemic, but only 67 per cent of companies reported which workers are covered by sick leave measures.

Findings suggest that in many organisations, there is a tiered system of protection for workers, with contract types dictating the extent to which workers can access these measures. However, a contract type does not insulate workers from the health risks related to COVID-19. Lack of protection for non-permanent workers also has negative consequences for businesses, their wider workforce, and broader public health implications.

Now in its fifth annual cycle, WDI’s survey shows that no company is ‘there yet’ when it comes to reporting on the S of ESG. However, WDI survey participants are pioneering a model of corporate transparency that is head and shoulders above the rest, making almost 3 times as much data available than those who do not.  

There is still a lot of work to be done to improve workforce practices. While transparency in and of itself is only a first step, public information means knowledge sharing, mutual learning, and the improvement of business practices across the board, ultimately driving the provision of good work and fair wages globally.

For a more in depth look at the WDI 2020 survey findings please follow this link.