While climate-related concerns have long dominated headlines, investors’ top issue when it comes to the social aspect of environmental, social and governance (ESG) is labour practices, says Fitch Ratings.
In a new report, the rating agency said that growing demand from investors for more clarity on labour-related ESG risk is generating enhanced disclosure — on both a voluntary basis and in terms of regulatory requirements.
“The push for more consistent, quantitative reporting will allow fixed-income investors and analysts to better evaluate the materiality of workforce risks to bond issuers,” Fitch said, noting that diversity, equity and inclusion considerations have emerged as priorities for investors.
As a result, some of the world’s largest asset managers have ramped up engagement with companies in this area, Fitch noted.
“Gender representation on corporate boards and in senior management is also a focus of financial regulators and stock exchanges that have introduced disclosure requirements or quotas on large or listed companies regarding the number of women in senior positions,” the rating agency said.
Alongside equity and diversity issues, other labour-related considerations include issuers facing strikes and other union hurdles, plus health and safety incidents, and discrimination allegations.
“In addition to financial impacts such as lower profitability or fines, changing attitudes among consumers can contribute to reputational damage in such areas as workplace discrimination and poor working conditions,” Fitch said.