04 May 2021
Ethical investing has played an influential role in shaping society as we know it today. Dating back hundreds of years and with its roots in religious motivations, it has catalysed the evolution of what society considers acceptable practice by industries, businesses and governments.
The 1960s civil rights movement in the US, corporate retreat from involvement in the Vietnam War in the 1970s, ending of apartheid in South Africa in the 1990s, and recent action on climate change have all been furthered by direct action targeting specific corporations or countries – or both.
What started as a reactionary response has, however, fast become a way of pre-emptively shaping corporate strategy and steering global attention.
“At Wesfarmers, we have long recognised that managing our businesses with a focus on environmental and social impacts is directly related to delivering superior total shareholder returns over the long term.
“Understanding how we manage the ways that we impact the environment and communities in which we operate has also become an increased focus amongst our stakeholders.
“They are particularly looking for transparency about climate-related risks and opportunities, and with the effects of a warming planet increasingly being felt around the world, expect us to play our part in the solution and contribute positively to the global goal of net zero carbon emissions by 2050.
“Traceability of raw materials is another area of growing interest to our team members and external stakeholders. We were the first retailers in Australia to publish online the garment factories that our apparel businesses source from, and the information is widely accessed by customers and other stakeholders.
“Working closely with our suppliers and others, we are piloting approaches that use blockchain and other technologies to help establish provenance and give confidence that products are responsibly produced.
“Alongside using GPS systems to track products and ensure they are made in the factories with which we have placed orders, virtual technologies have allowed us to understand and monitor the conditions within the factories we source from despite travel restrictions impacting our ability to do as many in-person audits as usual.
“We can achieve much in the short term, but the majority of the environmental and social opportunities and challenges facing companies today require a long-term focus and commitment.”
Executive General Manager,
Corporate Affairs, Wesfarmers
Evolving consumer expectations will drive further action, aided by the steady rollout of international legislation designed to further the corporate consideration of ‘E’ and ‘S’ issues. Investor-led action will, however, be the strongest single incentive for organisations to change.
And with good reason: Macquarie research has found a consistent relationship between shareholder returns and ESG scores amongst leading Australian companies; those with the highest scores exhibit higher returns and lower volatility.
When the world’s largest asset manager BlackRock last year announced that it would hold corporate directors accountable for making insufficient progress on social and environmental issues, it put companies and boards on notice: they need to expunge their environmental footprint, take social issues seriously and commit to good governance. The (investment) world is watching.
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*Brian Stauffer, Follow the Thread: The Need for Supply Chain Transparency in the Garment and Footwear Industry, Human Rights Watch, 20 April 2017, https://www.hrw.org