Jodie Barns (left), Brett Chatfield and Luba Nikulina

International and domestic asset owners are increasingly focused on ensuring communities and workers have fair and equitable treatment as the decarbonisation of the global economy accelerates.  

While the focus over the last five years have been on climate change, investors are recognising the importance of social issues and that these can help or hinder the energy transition.  

“Climate changes isn’t a single problem statement; when you’re just talking about the emissions, you’re forgetting about the fact it is a structural transformation to a low carbon economy,” UniSuper’s manager ESG Jodie Barns tells Investment Magazine.  

“That in itself is a multi-problem statement, because what it requires is a very complex societal, environmental and economic transformation. 

She adds the net-zero emissions goal won’t be achieved without an economic transformation. 

“It does require trade-offs between social and economic and environmental issues to ultimately achieve the carbon reduction component of it,” she says.  

There are several reasons why social issues have lagged environmental and governance explains Will Martindale, co-head of sustainability in London at UK and Dutch asset owner Cardano, one of the largest master trusts in the UK. The fund manages over 2 million members through NOW:Pensions with $28 billion AUM as of December 2022.  

Martindale says social issues tend to be personal and how inequality is defined differs with different political groups. 

“In the UK, we benefit from all major political parties supporting the concept of net zero and decarbonisation,” Martindale says. “But when it comes to social issues, there’s not quite that political clarity, which makes a more difficult set of issues for trustees and investment decision makers.” 

The reporting and measurement of data relating to social risks are also less consistent and available compared to climate data. There is also less academic and sell side practitioner evidence to demonstrate the link between addressing social issues in portfolios and financial performance, he says. 

A risk to solve 

First Super’s chief executive Bill Watson says governments see social disruption as an issue to be managed and not a problem to be solved. 

He cites the example of the devastation to timber workers and their families after environmentalists successfully campaigned for logging to stop.

“We’re now seeing that occurring in extractive industries as well,” Watson says. “The issue for us there is not the path to net zero but the just transition. The Bowen Basin in Queensland for example employs a lot of people, if you shut down the coal industry tomorrow as some people would have us do, that would be economically devastating.”