Chair of IFOW’s Founder Circle Lord Robin Hodgson (Con) and Future of Work Commissioner Lord Jim Knight (Lab) are arguing in Parliament that the financial regulators should take into account the impact on sustainable good work of financial services.

IFOW Director Anna Thomas and IFOW Trustee Daniela Barone Soares explain why sustainable good work should be core to understanding and measuring ESG investment.

Pandemic silver linings are thin on the ground. But one bright spot is the way it has highlighted our mutual dependence and vulnerabilities. It's also put a spotlight on work: many of the people in society with the highest levels of insecurity, uncertain pay and poor work quality are those responsible for its functioning: carers, retailers, nurses, tellers. That’s creating momentum to change the system for the better.

The pandemic has reminded us of the role of companies as social institutions, with social responsibilities to their employees and the communities in which they operate. Government support has changed the ‘pact’ between corporation and society, and this requires a higher level of responsibility and scrutiny. Against this background, we think that companies are likely to be judged according to how they have treated their employees through the crisis - and there’s a compelling case that corporate behaviour to the workforce will be key to post-pandemic recovery.

Employment and livelihood crises are now top of the risks for 2021, according to the World Economic Forum. Long-term risk outlooks for businesses are shifting, and there’s a general trend towards considering technological, societal and political drivers, as CEO’s strive to prepare for what may lie ahead.

So how can we best judge and reward companies that are being 'good' employers? One of the answers lies in establishing a clear framework to help investors and companies establish good work principles and practice. This is exactly how our Good Work Charter can help.

As environmental, social and governance (ESG) investing goes mainstream, with over $40 trillion of assets under management globally, the Charter fills this gap by providing a framework for investors and companies. ESG metrics tend to assess the potential impact on future corporate cash flows stemming from good (or bad) approaches in relation to the environment, society and governance. So far, ESG metrics has been on the 'E' and 'G'. But the pandemic has highlighted the need to take a closer look at the 'S'.

Other than the most basic metrics, such as the Living Wage, pension levels of employees vs senior executives, there's no calibration of what good “S” looks like. Existing metrics mostly capture only minimum standards and the absence of bad practice at work, such as modern slavery, rather than positive criteria. That’s why Lords Hodgson and Knight have proposed an amendment to the Financial Services Bill which would require the regulators to consider the ‘social’ impacts on good work. They use IFOW's Good Work Charter as their basis and define 'good work' by its principles. The idea is that the new requirement on regulators would trickle down, first to those who provide financial services and then to those in receipt of them.

These considerations will help better define materiality around 'S' and support companies to articulate the positive impact they can have on their workforce. This would offer bite and focus, criticisms increasingly pitched against ESG investment.

Work is the thread that connects the state and markets, government and companies, public policy and private investment. By disrupting the world of work, the pandemic has forced us to re-examine the value of work. IFOW research shows that focusing on good work is the best way to align health, social and economic interests, and builds resilience to shocks. Good work should be at the centre of rebuilding strong, resilient economies across the country.

The Financial Services Bill, which is the first part of a wholesale rethinking of financial regulation post-Brexit, could offer a valuable opportunity to embed the principles of good work for the future.

IFOW and the authors of this blog would like to thank the members of our Founder Circle, chaired by Lord Robin Hodgson, many of whom are experienced impact investors.

If you have any thoughts about this article or would like to learn more about Snowball, please email us at hello@snowball.im.