Sustainable theme focus: Covid-19 highlights the importance of responsible capitalism
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Sustainable theme focus: Covid-19 highlights the importance of responsible capitalism

In recent decades, capitalism’s focus has become one dimensional: to generate financial returns for shareholders with little to no accountability of a corporate’s impact on society and the environment. However, more corporates are broadening their “purpose” to include the impact their operations and products have. This has been referred to as “responsible capitalism”, where all stakeholders are considered in the running of a business – employees, customers, suppliers, communities and the environment, not just shareholders.

People often say a crisis brings out the best and worst in people, and we have seen the same in companies. Mastercard has responded to the pandemic by committing to provide $250 million in small business support, mostly in the form of cyber vulnerability assessments and identity theft protection3 – two things that have become key as shops remain closed and retail moves online. Another example, this time not held in the portfolio, is Facebook whose Small Business Grants program will give more than $100 million to 30,000 small businesses across the globe.4

In contrast, we’ve seen price gouging of goods such as hand sanitiser and face masks, which surely shows the worst in companies attempting to take advantage of public fear. Amazon has removed 500,000 items due to “Covid-based price gouging” and suspended 6,000 accounts for breaching fair pricing policies.5 Another clear example showing the best and worst of companies can be seen in Western apparel brands. These companies have a responsibility for millions of factory workers in countries such as Bangladesh and India, and during this crisis should be honouring existing orders. But many have not done this, meaning suppliers unable to bear the financial burden have had to lay off or suspend millions of workers, often without pay and severance, pushing an already precarious group to greater economic vulnerability. We are pleased to see that the companies held in GSO, such as Adidas, are honouring their commitments as tracked by the Worker Rights Consortium.6

In another area of corporate life there is the question of dividends, which are close to investors’ hearts and now a matter of hot debate. Whose should be cut and by how much? The answer is not simple as pension schemes globally depend on dividend income to provide regular payments to retirees. Without these payments they could be forced to liquidate assets at a time when the market is reeling from the impacts of the pandemic, potentially threatening the system’s financial stability. On the other hand, companies whose revenues have been hit, and those such as banks who are systemically important and could use their cash to support vulnerable businesses, should focus their efforts in these areas. EssilorLuxottica, a leading producer of ophthalmic lenses and one of our holdings, has cut its dividend to protect its balance sheet after a tough quarter and finance a crisis fund for its employees, a move we fully support.

Ecolab has also demonstrated its commitment to its employees. Executives have taken pay cuts in order to supplement sales teams’ incomes, some of whose customer base (restaurants and hotels) are in complete lockdown leading to a collapse in new business. This is something that could cause financial ruin when typical sales team salaries are 50% commission based.
Another tool used to boost shareholder returns, and in turn management incentives, are share buybacks. Companies have previously done this even if it meant sacrificing business investment or leveraging corporate balance sheets to do so. However, as government funds are being deployed to save companies, such practices are coming under increased scrutiny. Indeed there has been political commentary on why this may be regulated going forward, such as this from Chuck Schumer, a US Democrat leader: “One of the reasons industries are so short on cash right now is that they have spent billions buying back their own stocks instead of investing in their workers and saving for a rainy day. That needs to be addressed NOW.”7
The actions taken by companies over this period – to support employees, customers, suppliers and local communities – show a new type of responsible capitalism. It also shows an understanding that by looking after the surrounding community, despite potential short-term costs, they strengthen their corporate landscape in the future. As long-term investors, actions like these give us confidence that the companies we invest in are likely to weather the storm.

Company q120 sustainable impact highlights

We took advantage of the market sell-off to initiate three new positions in the strategy. These were:
A table showing Company q120 sustainable impact highlights
Source: Columbia Threadneedle Investments analysis/internal reports, 28 April 2020. The mention of any specific shares or bonds should not be taken as a recommendation to deal. All intellectual property rights in the brands and logos in this slide are reserved by the respective owners.
20 May 2020
Pauline Grange and Jess Williams
Pauline Grange & Jess Williams
Portfolio Manager, Global Equities & Portfolio Analyst, Responsible Investment
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Sustainable theme focus: Covid-19 highlights the importance of responsible capitalism

3 Mastercard press release, Mastercard Commits $250 Million To Support Small Business’ Financial Security, 7 April 2020.

4 Forbes, Vistaprint, Facebook, Verizon, More Offer COVID-19 Grants To Small Businesses, 16 April 2020.

5 CNBC, Amazon removes hundreds of thousands of ‘high-priced offers’ amid coronavirus price gouging, 6 March 2020.

6 www.workersrights.org/issues/covid-19/tracker

7 Chuck Schumer, Twitter (@SenSchumer), 18 March 2020.

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