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A green but jobless recovery

The idea of a green recovery has been centre-stage recently and enthusiasm around this continues to gain momentum. At the same time, the notion of a ’jobless recovery’[1] has also come to the fore.

In times of crisis, companies strive to enhance their competitive position by adjusting their operations. In aggregate, this leads to periods of jobless recovery for the economy until capacity again becomes constrained and expansion or new businesses soak up the unemployed.

From an ESG perspective, should we be concerned about a green – but potentially jobless – recovery?

The death of the Phillips Curve?[2]

To be precise, the issue is not necessarily the absolute employment numbers, but rather the nature of the modern job. The US labour market offers a cautionary tale as to why the quality of a job matters for the overall wellbeing of both an economy and its citizens.

The Phillips Curve argues that when employment rises, so do wages. Until recently, US unemployment was at a 50-year low.[3]

Yet, wages continue to remain stagnant, which are in turn hitting aggregate demand.[4]

In part, the transformation from a manufacturing to a services-led economy has created greater inequality in our society. As large numbers of unskilled manufacturing jobs have been replaced by fewer skilled employees, the unskilled have flocked into the services sectors and competed for jobs at dwindling relative wages.

At the same time, decent work, economic growth and reduced inequalities are equally pivotal for a sustainable future and are Sustainable Development Goals in their own right. The structural importance of these indicators is becoming increasingly apparent.

Blue collar work and automation

The fact of replacing jobs or enhancing efficiency and optimising costs is not a corporate vice in and of itself. Automation is often necessary as well as considered complementary to the existing workforce – by further improving productivity and safety. Yet, COVID-19 has also elevated the differential impact the crisis has had on different actors in the labour market. Whereas white collar workers have been largely shielded from the most adverse effects, blue-collar and frontline workers have been exposed to several risks. Moreover, these workers are at greater risk of being replaced through automation.[5]

What does this mean for investors?

There is, therefore, a need to understand and manage the externalities (both positive and negative) that occur in the labour market - in the form of good, high quality jobs versus bad, low quality jobs. Alongside a push to increase the importance of workplace democracy and representation[6], we are clearly seeing pressure on companies to address both their environmental and socio-economic exposures.

As investors, we are as concerned with social externalities as we are with environmental externalities arising from corporate activities. Therefore, we also believe that companies that ensure the wellbeing of their workforce in the form of a fair wage that provides a decent standard of living and safe working conditions will in turn be rewarded by a more motivated and healthier workforce.

Value cannot be created in the long run through the exploitation of workers.

Company engagement

As investors, we can participate by engaging with and maintaining pressure on companies, industry bodies and governments. In 2019 and during the first half of 2020, we have engaged with several portfolio companies on improving the social exposures that we believe are material in terms of having a potentially negative and positive impact on their business. We are, for example, in ongoing dialogue with several companies on their management of human rights exposures.

Last year, we successfully engaged with Hyundai, which resulted in the company formalising a freedom of association policy and improving labour relations dialogues and routines. We have also engaged closely with Samsung Electronics to encourage them to improve labour relations.

On the other hand, we are witnessing a deterioration of labour relations and undertaking challenging dialogues with companies in the US food industry that we are engaging with in the wake of the COVID-19 crisis.

An important long-term trend

We are currently at a time of reckoning where we must, through regulation and responsible employment take workers health more seriously, both through providing wages that cover the cost of living and health and safety in the workplace. We believe that societal externalities that are either produced by companies or that influence them will emerge as an important long-term trend in the wake of the current crisis.

As with most sustainability issues, these cannot be addressed without broad collaboration and cooperation. Beyond rules-ofthe-game enforcement, governments can, for example, provide support for skill enhancing and retraining. Governments should also ensure that a green recovery also encompasses labour-intensive jobs – this is one of the few elements that the Green Deal has been criticised for not addressing sufficiently.[7]

Corporations can, in turn, leverage on public partnerships to innovate and further expand their labour capabilities, ensure that they and their supply chains operate in accordance with global norms and best practices, as well as put in place appropriate mechanisms to cater for the wellbeing of their workforce.

The consumer – or customer – is often said to be the most important actor in the economy. In that case, every company has an incentive to make sure that their workers, in their capacity as consumers, can continue stimulating the aggregate demand of the economy. Thriving supply and demand conditions in the real economy should be of interest to investors too.

Read our Sustainability Report for Q2 2020 here.


[1] A jobless recovery is defined as when economies grow, particularly after a financial crisis, but GDP growth is not followed by increased employment

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