Social Factors

Question 1

Define social mega-trends and name them?

Answer 1

Long-term social changes that affect society, government, and economies permanently over a long periods of time.

1) Globalization - integrating local/national economies into global non regulated market
2) Automation/AI- procedures/processes are produced with min human assistance
3) Wealth Creation and Inequality - Continues to grow globally
4) Digital Disruption - Changes existing business models closely linked to automation/AI
5) Changes to work, leisure and education - Creates flexibility but not without some negative effects such as blurred life/work balance
6) Changes to family structures and individual rights/responsibilities - women in the workforce, young adults less reliant on family structures
7) Urbanization
8) Religion

Question 2

List some implications of globalization?

Answer 2

1) Offshoring - outsourcing jobs to lower wage regions
2) Dependency - As certain regions dominate the production of certain goods, other regions become dependent on these suppliers.

Question 3

What sectors will Automation/AI have the greatest effect on?

Answer 3

• Healthcare
• Automative
• Financial Services
• Security
• Creative

Question 4

What kinds of negative effects stem from inequality/wealth creation?

Answer 4

Increasing evidence that growing inequality affect economies/societies resulting in a less skilled & less healthy society with lower purchasing power among middle class. This limits overall growth.

One strategy under evaluation is corporate tax strategies and their aggressive optimization strategies.

Question 5

Key considerations for digital disruption and access to electronic devices?

Answer 5

• Using digital business to disrupt existing markets
• Creation of Big Data - how is it collected, stored, processed, protected and monetized.
• Greater access to electronic devices gives way to the next tech frontier called IoT (Internet of Things) were semi-intelligent devices communicate directly with each other and the internet.

Question 6

Changes to work/leisure time and education, rights and responsibilities brings attentions to what considerations?

Answer 6

• Effects of flexible working patterns and human capital mgmt
• Increase in higher education but yet continued lack of qualified employees for certain sectors
• workforce grow more diverse with more women entering labour market creating more financial independence but issues remain in wage gap, higher unemployment, etc.

Question 7

What is the demographic shift happening in developed countries?

Answer 7

increased life expectancy combined with falling birth rates have resulted in an older population. This affects tax revenues, spending habits, savings rates and business risk in some industries.

Question 8

Name some societal implications of Urbanization?

Answer 8

• Economic changes: Changes in costs, often pricing local working class out of the market
• Environmental changes: Urban heat islands can be created ( creation and storing of large amounts of heat)
• Social changes: Social: increased mortality from non-communicable diseases associated with lifestyle, including cancer and
  heart disease. Residents in poor urban areas (such as slums) also suffer “disproportionately from disease,
  injury, premature death, and the combination of ill-health and poverty

Question 9

Implications of Religion as a social factor?

Answer 9

1) Influence on consumer habits/practices
2) Impact on politics which affects local economics
3) Drives faith based investors aka norms based exclusion investors, two of the largest and oldest include:
- Christian Investors - Investing aligned with Bible and Christian values might refrain from certain companies
- Islamic Investors - Aka Shariah Compliant would not invest in companies that profit from Alcohol, Porn, Gambling, Pork. Also will not own investments that charge interest or derive substantial profits from interest.

Question 10

Name Environmental Megatrends that have a social impact?

Answer 10

• Climate Change including transition risk- with potentially adverse effects on the milions employed in energy, coal, manufacturing, etc.
• Water Scarcity - CC increases water scarcity, this problem is exacerbated by certain companies/industries that are water intensive.
• Mass Migration - Desertification and Water Scarcity causes he displacement of people from less developed countries to more developed
• Pollution and Degradation of resources

Question 11

Why are waste-water treatment plants and the prevention of groundwater overdrafting difficult to implement?

Answer 11

• Treatment plants are highly capital intensive
• Increasing population makes it difficult to manage
• Difficult to secure financing and labor needed to operate

Question 12

Where should investors start when implementing social factors in their investment decision?

Answer 12

1- Determine which social factors are controversial or financially material in an industry
2- Next assess how exposed certain companies are to sector specific social factors keeping in mind business model, geographical location of business operations.
3- Where relevant, assess critical social factors in supply chain

NOTE: social elements that are considered to have the largest financial materiality depend on specific aspects mostly related to their field of industry.

Question 13

Name both types of social factors?

Answer 13

Internal - Includes human capital, working conditions, safety, employee rights
External - Includes stakeholder opposition, product liability, animal welfare.

Question 14

There are many different guidelines with respect to human rights. However, two have a direct effect on companies and investors… they are?

Answer 14

1) UN Guiding Principles on Business and Human Rights (UNGPs’s)
2) OECD Guidelines on Multi- National Enterprises

Question 15

UNGP encompasses what 3 pillars outlining how states and businesses should implement framework?

Answer 15

1) State duty to protect human rights
2) Corporate responsibility to respect human rights
3) Access to remedy for victims of business related abuses

Question 16

OECD guidelines for MNE’s are a comprehensive set of government backed recommendations to encourage positive impact from MNE. Name these voluntary principles?

Answer 16

1) employment
2) human rights
3) environment
4) information disclosure
5) combating bribery
6) consumer interests
7) science and tech
8) competition
9) taxation

Question 17

What is the Corporate Human Rights Benchmark?

Answer 17

Collaboration led by investor and civil society orgs to create an open benchmark of corporate human rights performance.
Provides a comparative YoY snapshot of the largest companies in the world looking at policies, processes and practices in place to systemize approach to human rights and response to serious allegations.

Question 18

Name the labor rights as summarised under the Int’l Labor Org (ILO)?

Answer 18

• Freedom of association and protection of right to organize
• right to collective bargaining
• abolition of forced labor/slavery
• minimum age
• no child labor
• equal remuneration
• no discrimination

Question 19

One way can companies can navigate stakeholder opposition and/or controversial sourcing?

Answer 19

Bottom up participation in the form of Free Prior Informed Consent:
Free - No manipulation or coercion
Prior - implies consent is sought in advance of activities being authorized
Informed - people affected like indigenous folks receive sufficient info on project including size, pace, reversibility, scope, reason, duration
Consent - Expressed agreement to project.

Question 20

What is the difference between product liability and consumer protection?

Answer 20

Consumer protection referrs to laws and govt regulation designed to protect consumer and product liability is the legal responsibility imposed on businesses for selling defective goods.

Question 21

What do you need to keep in mind when understanding the materiality of social issues?

Answer 21

First understand the materiality at a geographical and industry level. This must be looked at sector by sector with considerations across supply chains and customers in multi-jurisdictions.

Having identified which social factors are relevant for a particular company, analysts will assess the way the company manages the risks and opportunities associated with these social factors, compared to its peers. This includes looking at:
1. corporate strategy;
2. policies in place;
3. processes and measures implemented;
4. performance indicators;
5. public disclosure.
This process involves looking at:
1. current performance;
2. progress over time; and
3. how that progress compares to industry averages and key competitors.

The ability to identify social trends early and implement efforts to adapt to company strategy should be part of traditional risk assessment and could be used to find investment opportunities.

Question 22

Social scenarios that can utilized when quantifying the impact on financial modeling/ratios?

Answer 22

1. occupational health and safety issues => huge fines and liabilities;
2. human capital management issues => greater operating costs from turnover
3. supply chain issues => hurt brand, reputation and revenue
4. local protests => disruptions of commercial activities
5. poor working conditions => product issues

Question 23

A growing investor initiative, which is focused and engaged on the risks and opportunities linked to intensive
livestock production is?

Answer 23

Farm Animals Investment Risk and Return: FAIRR focuses particularly on
the increased prevalence of antimicrobial resistance due to intensive farming practices and poor antibiotic
stewardship.

Question 24

What is The Platform Living Wage Financials (PLWF)?

Answer 24

Coalition of (mainly Dutch) financial institutions that encourage and monitor investee companies to address the non-payment of a living wage in their global supply chains.

Question 25

How does the EU taxonomy for sustainable activities guard against legal responsibility for companies to take responsibility and check the conditions in their supply chains?

Answer 25

The activity should substantially contribute to one of the objectives to become taxonomy-aligned,
whilst doing no significant harm to the other five, where relevant, and comply with minimum
safeguards (e.g. OECD Guidelines on MNEs and the UN Guiding Principles on Business and Human
Rights).

Question 26

What is the Corporate Human Rights Benchmark?

Answer 26

is a collaboration led by investors and organizations dedicated to creating the first open and public benchmark of corporate human rights
performance.

The CHRB provides a comparative snapshot year-on-year of the largest companies on the planet, looking at the
policies, processes and practices they have in place to systematize their human rights approach and how they respond to serious allegations.