We’re taking a closer look at the process Sarasin apply when assessing potential investment in new businesses. The analysis focuses on 15 factors within the main ESG themes and having explored the environmental considerations, we’re moving on to the social components:
With the drive to reduce costs often resulting in a fall in standards along the supply chain, Sarasin explore how businesses remain aware of forced labour, working hours, fair and living wages rather than minimum pay and suitable health and safety measures. They may look for other indicators of poor practice including failure to pay suppliers in a reasonable timeframe, conflicts in labour relations and any controversies related to supplier treatment.
Sarasin look for unfair employment practices like zero hours contracts, union bans, poor working conditions and whether the business references the fundamental conventions of the ILO (International Labour Organisation) or is an accredited Living Wage employer. They consider diversity and look for a gender gap regarding employment, pay and board composition. Health and safety data is examined, alongside lost work hours, targets for incident reduction, staff turnover and any signs that may point towards incidences of modern slavery or forced labour.
Sarasin consider whether the business’s products or services cause harm to customers. This includes ‘traditional’ ethical concerns including tobacco, alcohol, gambling, firearms and pornography as well as recent concerns around examples such as video gaming and opioid addiction. Health concerns, product safety, privacy and data security controversies are all assessed as areas of potential harm.
Bribery & Corruption
The law in this area is still weak in many areas and some industries are more vulnerable to bribery and corruption – government procurement of infrastructure, healthcare, utilities or resource extraction for instance. Sarasin look for a whistle-blowing mechanism and additional checks of internal controls by the auditor to mitigate potential risks.
There are many ways in which businesses can abuse their position in society – consider the unreasonable terms set for those with little choice as seen in the payday lending scandals. Or the avoidance of tax through loopholes. Or even examples of companies infringing communities’ access to water supplies or indigenous lands. Sarasin look for signs of any controversies around abuse of power or political interference.
As we build a larger awareness of the analysis Sarasin undertake for each new investment proposition, it’s clear that the resulting engagement strategy put in place to mitigate risk is based upon a detailed picture of the operation and impact of the business in question.