Does Office Work Mean Better Returns? It’s Complicated

According
to
Mervyn
Tang,
head
of
sustainability
for
Asia
pacific
at
Schroders,
there
are
many
components
an
active
investor
would
look
at
to
gauge
an
investee’s
human
capital
performance:

•
Overall
workforce
strategy
and
culture;

• Talent
development;

• Compensation
and
benefits;

• Incentive
structure
and
performance
measurement;

• Succession
planning.

Which
Aspects
of
the
Social
Pillar
Hold
Financial
Materiality?

Some
critical
questions
follow:
how
do
we
determine
which
parts
of
the
so-called
“social
pillar”
hold
financial
materiality?
Is
there
a
definitive
line
between
right
and
wrong?
The
answer
is
unclear.

Taking
working
from
home
as
an
example,
Tang
says:
“remote
working
is
one
of
those
things
where
scientific
data
is
not
going
to
tell
you
which
one
is
better.
It’s
going
to
be
dependent
on
a
workforce
as
well
as
a
particular
business
[…].
All
these
things
add
up
to
specific
considerations
for
individual
markets
in
terms
of
how
this
materialises.”

“The
thing
where
we
would
want
to
see
companies
have
a
clear
enough
policy
to
be
able
to
define
that,
to
be
able
to
articulate
what
they’re
looking
to
do,
how
they
also
think
about
measuring
that,”
he
continues.

“If
they
measured
productivity,
have
they
seen
a
change
based
on
remote
work,
or
have
they
not?
That’s
going
to
vary
because
it’s
much
easier
to
do
remotely
for
an
IT
company,
versus
a
restaurant,
for
example.”

Finding
Hidden
Financial
Risks
Through
the
Social
Lens

The
complexity
and
nuance
associated
with
social
issues,
as
compared
to
climate
or
corporate
governance
measurements,
make
disclosures
critical
in
performing
meaningful
comparisons
and
judgments.

Tang
thinks
a
lot
of
this
relies
on
getting
information
and
data
from
investee
companies.
On
human
capital
management,
“the
answer
is
not
always
to
raise
wages,”
he
says.
Wage
and
salary,
from
an
investment
standpoint,
have
a
cost
to
it,
but
Tang
also
considers
accrued
costs
to
a
company.

“If
you
pay
workers
too
little,
then
you
get
to
a
point
where
they
might
end
up
needing
three
jobs
to
live
and
then
their
productivity
comes
crashing
down,”
he
says.

“That’s
the
problem
[…].
The
flipside
is
if
you
keep
wages
down,
the
unintended
cost
of
that
decision
may
not
be
fully
captured
in
the
financials
and
will
materialise
later.

“For
a
lot
of
sustainability
considerations,
we’re
trying
to
think
about
things
that
are
not
so
tangible
and
cannot
easily
be
captured
by
the
financial
metrics
but
may
play
out
financially
in
the
future.”

The
bottom
line
is
a
company
should
also
have
tools
in
place
to
monitor
this,
such
as
regular
employee
satisfaction
surveys
that
they
can
make
use
of
to
understand
how
it
changes
over
time
and
whether
there
are
specific
departments
that
are
being
affected.

Social
Pillar
Isn’t
Purely
Qualitative
or
Quantitative

Quantitative
accounting
metrics
and
qualitative
techniques
go
hand-in-hand
to
refine
the
understanding
of
human
capital
management’s
contribution
to
an
investee’s
returns
and
productivity.

Tang
says:
“This
is
[a]
very
social
focus,
but
it’s
also
hard
for
a
company
to
realise
its
own
problems. Maybe
they
look
at
turnover
numbers
going
up,
but
they
might
not
know
what
happened.

“Just
because
the
number
is
high
or
low,
it
doesn’t
necessarily
say
this
is
a
red
flag
for
the
company
or
this
is
a
problem.
But
it
does
allow
us
to
ask
the
question
and
make
the
analysis.”

And
based
on
what’s
quantitative,
an
active
investor
can
talk
to
the
company
management
and
understand
the
situation.
This
is
the
starting
point
of
getting
to
know
the
issue
–
whether
this
is
“a
risk
and
opportunity
or
just
a
statistical
artefact.”

Context,
Context,
Context

One
of
the
data
points
Tang
looks
at
for
human
capital
assessment
is
web-scraping
data
from
Glassdoor
reviews.
The
company
offers
workers
everywhere
the
chance
to
give
honest
feedback
about
their
employer’s
management,
policies,
and
culture,
among
other
things.

“We
want
to
know:
has
there
been
positive
or
negative
sentiment
over
time
and
have
people
been
quitting
the
company?”
asks
Tang.

At
some
point
during
Covid-19,
his
monitoring
stumbled
on
an
Australian
healthcare
company
that
experienced
an
exceptionally
high
increase
in
employee
departure.
Like
analysing
a
company’s
financial
fundamentals,
ESG-aware
investors
should
identify
structural
and
cyclical
factors
like
this
in
a
bid
to
see
what
could
affect
it.

With
the
Glassdoor
data
on
hand,
his
team
probed
the
situation.

“The
company
gave
us
more
information
on
the
quality
of
its
policies
when
it
comes
to
employee
retention
and
the
benefits
it
has
been
offering,”
he
says.

“It
assured
us
this
was
effectively
a
one-off
[event],
driven
by
Covid-19.
It
was
quite
a
specific
set
of
circumstances
that
the
company
was
facing
then.

“That’s
an
example
where
models
and
data
give
us
a
bit
of
information
that
we
then
check
for
that
insight
trying
to
drive
outcomes.
This
is
more
than
we
have
some
specific
desire
for
the
company
to
do
something
in
mind.”

Pain
Points
to
Monitor

Elsewhere,
examples
are
many
where
human
capital
issues
can
be
more
than
just
transitory.

Walking
out
of
the
pandemic,
he
thinks
there
are
some
stress
points
facing
investees
while
the
investment
and
ESG
teams
have
focused
on
determining
whether
companies
have
done
enough
in
their
social
pillar.

“As
a
very
Hong
Kong-specific
example,
where
apartments
are
smaller,
if
I
compare
it
to
let’s
say
Singapore,
the
pressure
of
working
from
home
in
Hong
Kong
can
be
more
painful
than
working
from
home
in
Singapore,
just
because
of
the
size
of
the
average
apartment,”
he
says.

While
there’s
recognition
from
companies
that
now
is
a
difficult
time
for
workers,
the
cost
of
living
globally
continues
to
be
on
Tang’s
radar,
in
terms
of
how
inflationary
prices
of
living
have
to
do
with
workers’
livelihoods
and
human
capital
management
of
the
investees.  

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