Editor: We Need to Talk About the 'S' in ESG

ESG has global momentum, but is anyone taking interest in UK social mobility? Ollie Smith has seen too few examples, though he is very happy to be proved wrong  

Ollie Smith 21 January, 2022 | 1:16PM
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A person sleeps rough on the streets of London

I was intrigued to read this week’s Investor Views column. For one, it offers an interesting example of a younger investor daring to (and kudos to him for being honest) question the merits of ESG. Secondly, it highlights something every young investor should care about.

That issue is house prices. For more on why it is that UK house prices are so high, read Morningstar’s explainer, but back to the issue at hand.

I don’t agree with most of what our young investor said about ESG. For one, the argument that gambling companies perform a social good because they create jobs wears thin the moment you look at the social damage gambling does, and the cost to society it incurs.

Granted, the line between “good gambling” and “bad gambling” is debateable, but look at the stats. In the UK, the average salary has not yet breached the £26,000 mark. According to the government’s own estimates, though, the cost to the economy created by problem gambling is £1.27 billion. It's part of the business model. Gambling companies disproportionately target lower-income neighbourhoods, where customers may be more vulnerable and more desperate to double their winnings, if they win at all.

A Global Mission

For sure, said companies do pay a lot of tax. Bet365 founder Denise Coates’ family paid more than half a billion in tax in 2020 – money that can in principle be used to fund vital public services, or, as CityAM pointed out at the time, 62,725 state pensions.

But, as with other social ills like drug addiction and poor mental health, the shocking fallout from problem gambling is always more avoidable than it looks. As they say in healthcare, prevention is better than a cure.

That said, I empathise with the article’s interviewee, and I particularly share his frustration about the affordability of good housing. Specifically, he accuses ESG funds of not focusing enough on social mobility. We need to talk about that. I agree in principle.

In my relatively brief career, I have witnessed ESG and diversity concerns come to the forefront of investors’ minds (be they private, institutional or intermediary).

It’s now widely accepted that David Attenborough’s Blue Planet documentary fuelled rising demand for ESG investment products, and, having played personal witness to the physical arrival of Extinction Rebellion in London, there is no doubt environmental concerns have captured the hearts and minds of investors (even if their marketing departments do simultaneously sense a massive opportunity, which they most certainly do).

It’s gone global because it’s a global mission. ESG managers’ focus on quality companies across the world has given stocks that might not otherwise have had the same public exposure a real leg up, as well as vital funding. But for UK ESG investors, there is something missing in the conversation.

Prove Me Wrong

You’ll never find me physically sticking union jacks in ESG prospectuses, but there’s no denying that the UK faces profound challenges; social mobility, productivity, and social security do not receive the same airtime in the ESG discussion.

In the UK, saving for your own home is now more challenging than ever. The cost of living is rising dramatically, and, in an historically low-wage environment, workers could be forgiven for despairing just a little bit about the hand they are dealt. I suspect the UK’s mental health crisis impacts productivity more than we care to admit too.

And that's the people who have homes. Crisis, the national charity for people experiencing homelessness, says 227,000 people experienced its worst form – rough sleeping – in 2021. It was -1 degrees celcius last night. Is ESG ever going to come for them? 

In the last three years, I have only really encountered one example of mainstream financiers sincerely tackling these problems: Big Society Capital. If anyone knows of others, I'd love to see them. It's just one issue among many I'm very keen to be proven wrong about.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Ollie Smith  is editor of Morningstar UK