Pandora’s box: The ESG risks flying under the radar

The Juukan Gorge disaster has become the ultimate lesson for the future of ESG investing. The disastrous failures to protect historically significant sites that last year put Rio Tinto in the spotlight for all the wrong reasons underline another increasingly important but underappreciated area of ESG focus.

Alphinity Investment Management’s ESG and sustainability manager Jessica Cairns revealed a few areas of the burgeoning sustainability theme that remain underappreciated. Cairns cites similarly damning instances of CEO bullying at Cleanaway and governance failures at Crown Casino as other examples.

But through Alphinity’s access to boards and senior management, Cairns and her team have a rigorous process to vet companies for their culture.

And while acknowledging the above points are notoriously difficult to evaluate, Cairns says companies are starting to address this. For example, many boards now require employee turnover, employee satisfaction and diversity to be part of management’s regular reporting.

Workforce structure 

While emphasising it’s not an area that has been entirely ignored, Cairns says the workforce structure of firms has been in the spotlight more in the last 18-plus months but is still often missing from company management strategy documents.

The high-profile “patient zero” cases that saw COVID break out of quarantine – via hotel security guards, cleaners and bus drivers – are at least partly linked to the casualised workforces of these industries.

“There can be a disconnect between corporate policy and what’s happening on the ground when you’ve got multiple layers of management and companies sitting in between the different layers,” Cairns says. “And I’m not sure workforce structure is a topic that’s getting enough focus within the ESG space.”

How they manage employee health and safety has since become a standard line of questioning in Alphinity’s engagement with company management. “Often we get a blank look in response to this question, because it’s not something that’s commonly on the agenda,” says Cairns.

Stay focused. Don’t follow the crowd. Have a plan. These are all epithets of good investing, so it makes sense they also apply to successful ESG investing. Cairns confronts some key issues in this video on ESG’s Pandora’s Box.

Alphinity’s Sustainable funds invest in listed companies that support social priorities that offer attractive prospective returns. These companies ‘do good’ and ‘do it well’.