Notwithstanding, by coming together as investors and portfolio companies, the hope is to learn from and support one another on this sustainability journey. Over time, this will likely improve the way we all look at these systemic sustainability issues.
Other ESG issues that could potentially disrupt businesses and investments over the long term
Like climate change, the S part of ESG could also pose disruption risk to economies and markets. The COVID-19 crisis has magnified the vulnerabilities and awareness of rising social inequality, specifically those who have limited or no access to healthcare, jobs, social safety nets, and technology. In addition, as a result of the safety measures and supply chain onshoring, the push to technology and automation could lead to more job displacement, particularly for lower skilled workers, further widening the social divide.
GIC’s research indicates that of all the 10 social issues in the SASB materiality framework, employee engagement, diversity and inclusion is one of those that really matter for the company’s financial performance, with economic equality an important driver of the Diversity, Equity and Inclusion practice in the S in ESG. Economic inequality (defined based on three dimensions – income, wealth and access to opportunities due to a person’s socio-economic background, gender or ethnicity) has an impact on macroeconomic growth, inflation, political stability and policies. For example, higher income inequality is associated with weaker GDP growth especially for middle- and high-income countries, while rising economic inequality can result in poorer human capital quality due to limited access to credit, education and healthcare. Economic inequality is positively correlated to indicators of political stability, as social unrests and protests during crises periods are often a reflection of the underlying economic inequality in these societies.
As such macro factors matter for investment performance, investors need to pay attention to economic inequality risks.
Internalising sustainability in the organisation
Enterprise excellence is mainly about inspiring and getting the buy in from the whole organization on why sustainability is integral to GIC’s purpose and core values, and then equipping them with the knowledge and resources to make more responsible decisions. In the organization, GIC tries to do this in three ways.
First is through campaigns. Just recently, GIC completed its “sustainability month” programme, where webinars and workshops were organized featuring thought leaders from its global network of partners and fund managers, as well as GIC’s in-house experts. It also gamified the experience where people were divided into teams and able to set themselves ‘sustainability’ challenges such as saving energy or reducing waste in the home.
Next is about integrating the right corporate processes to build the right culture. This includes setting out clear expectations for sustainable business practices to our business partners, vendors and service providers, encouraging good governance, environmentally and socially conscious practices and behaviour, and reducing our carbon footprint across our global offices.
One key area of focus has been on fostering a diverse and inclusive culture in GIC. For instance, deliberate efforts have been made to adequately and appropriately consider diversity in the hiring process and performance management conversations. GIC also believes in empowering their people to contribute their time, effort and expertise to help the communities where they live and work. Through sustainable social programmes such as Differently Abled, GIC Sparks & Smiles, and GIC X Change, GIC seeks to promote inclusion within and outside of GIC as well as deliver long-term social impact.
Given its global footprint and networks, GIC also actively engages with external organizations such as IFSWF, FCLTGlobal and World Economic Forum, as a way to share insights and advocate long-termism in the community, sustainability and good corporate governance.
As a responsible steward, GIC aims to deliver good risk-adjusted returns and do in a way that will also drive positive outcomes for society over the longer term. To do that, GIC needs to maintain a resolute focus on its mandate, which is to protect and grow the reserves under its management. That is why being vigilant about the risks and opportunities arising from ESG factors is critical. Next, GIC must stay focused on the long term. Having this mindset allows GIC to look beyond short-term headlines and position for longer-term trends. Likewise, engagement to improve companies’ sustainability practices and focus them on a transition pathway will create long-term value. Third, GIC needs to continue building capabilities and partnerships. This means constantly working on getting better at what it does, staying informed on market shifts, and expanding its networks of like-minded partners to exchange best practices with.