It’s clear that the Black Lives Matter (BLM) movement transpires through every aspect of the Environmental, Social and Corporate Governance (ESG) factors which are being increasingly considered in investment decisions.
Investors are going all in on ESG themes and the standard is being used as data to identify growth opportunities, among other things, in companies that are well positioned for the future. McKinsey has analysed that 70% of studies show there is a positive link between ESG scores and financial returns. This can be partly attributed to the growing demand for companies to be more socially conscious.
It’s therefore unsurprising that the global unrest, sparked by the death of George Floyd, has pressured companies into publicising their solidarity with racial equality. Evidently, there is a financial incentive to do so. Nevertheless, further steps should involve an integration of the BLM campaign into companies’ alignment with ESG strategies: the two are symbiotic. Taking a cross-industry outlook will demonstrate the link between ESG and BLM, with a particular focus on: air pollution (E), diversity & inclusion in the workforce (S) and the boardroom (G).
Environmental changes affect everyone, but particularly black people which is why it forms part of the BLM cause. In the US and UK, research has found that people of colour are exposed to more air pollution than white residents. Also, in the UK it has been studied that air pollution is the worst in ethnically diverse neighbourhoods. The health effects of air pollution are linked to respiratory and cardiovascular conditions which significantly increases the risk of death from Covid-19 – of which black people are four times more likely to die from. There is a gross overrepresentation of black people in these statistics and it is harming communities. Reducing air pollution would be beneficial to the health of ethnic minorities and could save lives.
To improve air quality, especially in urban areas, companies are encouraging schemes like cycle to work and work from home (WFH). Notably, the pandemic has shown WFH can be utilised in times of crisis; and as we are facing an environmental crisis, WFH should remain available to all. The utilisation of WFH could also increase the availability of green urban spaces for recreation since there would be less demand for new offices. This is beneficial to black people as they are four times more likely to have no access to outdoor space at home. As Richard Bullard puts it: ‘if we strive to eliminate racism, as well as pollution… we can make sure communities are sustainable’. Through crystallising the BLM effort in environmental policies, companies will exhibit mindfulness of their external role in society; which will be reputationally appealing to investors and consumers.
More apparent than the other factors, the BLM movement is innately social. Diversity in the workplace is essential in cultivating an environment based on merit, equal opportunity, and giving companies a proven competitive advantage. Though at a glacial speed, progress is being made, but more emphasis must be placed on inclusion. Research conducted in the industries of health, financial services and technology show overall sentiment on inclusion to be only 29% positive compared to diversity which was 52%. Diversity clearly does not guarantee inclusion and they both should be addressed simultaneously to ensure racial equity in the workplace. Furthermore, the pay gap between British workers and ethnic minorities has remained stubbornly wide. The Resolution Foundation observes that Britain’s 1.9 million black, Indian, Pakistani, and Bangladeshi employees are experiencing an annual pay penalty of £3.2bn.
Note how the black diaspora are grouped together in this statistic, suggesting as a whole they are more disadvantaged, regarding this issue, when seen in line with other ethnic minorities. BAME as a descriptive category which would neglect this discrepancy – maybe we should no longer use it?
A potential solution is mandatory ethnicity pay gap reporting that would encourage transparency in businesses, indicating they are open to scrutiny on their structures and potential barriers to opportunity. Mandatory reporting could contribute to the inclusion of black employees as they would feel adequately remunerated, thus promoting higher productivity and retention of talent; two aspects which help explain the optimistic link between ESG and financial performance.
Board composition sits at the heart of corporate governance and can be viewed in accordance with the BLM movement. The board is in charge of setting the company’s strategic agenda and determines how it performs financially and culturally. However, performance of the latter is meagre, as statistics show that black people only represent 1.4% of the most senior roles in the FTSE 100. Alarmingly, there is a lack of impetus to redress this figure since just 14% of FTSE 100 companies set measurable objectives for board ethnic diversity.
Clearly this has to be addressed. It’s important that black employees believe these high positions are attainable and that they strive for them. As a result, social mobility will be advanced and has the effect of widening consumer bases. The glass ceiling is not yet breaking for black people – ‘people of colour are superglued to the floor’ – so, what can be done?
In the US, Alexis Ohanian resigned as a member of the Reddit board, a company which he co-founded, so his seat could be filled with a black candidate. Members certainly don’t have to resign to advocate racial diversity, however, actions like prioritising ethnic diversity after the departure of a board member is a way of achieving this goal. With shareholder activism on the rise, it’s in companies’ interests to align themselves with racial diversity to lead to better business outcomes, thus attracting investors. Companies that consider ESG should be better equipped to ride out an economic downturn. As the global economy is set to face the worst recession since the 1930s, now is an opportune time to assimilate the fight for racial equality with ESG strategies.
By Sarah Bakare