The coronavirus pandemic is shaping the future of work. Flexible schedules, working from home, gig economy jobs and digital transformation might not have needed special prodding from a ruthless virus, but COVID-19 has accelerated and, arguably, concretized certain trends, namely:
- The new essential: The global pandemic and subsequent lockdowns have increased investors’ focus on the role of companies in society, most notably around the treatment of their customers, suppliers and employees. Many workers who are on precarious contracts and/or receive hourly or low wages and few, if any, benefits, have come to be lauded as heroes — essential to the functioning of society and economic systems.
- Digital transformation: If you’re reading this article on a laptop or smartphone, if you’re about to hop on a Zoom work conference or Webex, if your school-aged child is struggling through the challenges of remote learning, this item will be familiar. While change related to digitization — specifically in areas such as cloud computing, artificial intelligence (AI), and semiconductors — was already rapidly occurring, the pandemic has only accelerated this further, with internet connectivity helping to shift the nature of work and the workplace in ways that would not have been possible even a decade ago. With this seismic change comes an urgent need for companies to adapt and embrace digital technology.
- Flexible work arrangements: The lockdown also appears to have accelerated a number of pre-existing trends such as the shift to automation, reshoring of supply chains, and embracing more flexible working arrangements. Emerging from lockdown, a new business reality will likely be that in order to attract top talent, companies will have to offer attractive, flexible work practices. This could have numerous long-term implications, such as a shift in the demand and pricing of commercial office space, increased appeal of suburban living, greater spending on home offices and entertainment, and less spending on business travel.
- Increased education and skills training: The pandemic also has underscored certain population and demographic-based themes, many of which are intertwined with the future of work. This aging population has implications for the workforce, government spending, and pensions and retirement savings. Many forms of education could be affected and the specific skills required may change rapidly owing to the other, interlocking themes above, and the means of delivering education may shift towards an online model.
These pandemic-related factors and responses will change how we conduct business — and how we live our lives. With great change comes both financial risks and opportunities, which companies will need to balance against their societal obligations. If we begin with the premise that the lasting value of an investment is ultimately driven by the relationship between and among stakeholders — including directors, investors, customers, suppliers, the environment, society, regulators and of course, employees — the long-term viability of an investment requires decision-makers to understand and balance the needs of these diverse groups.
Seen through this lens, employee considerations become a vital input when it comes to Environmental, Social, and Governance (ESG). Applications related to ESG integration include avoiding companies that have such poor relations with employees that they are unproductive (or even strike), resulting in material reduction in revenues and increased costs. More holistically, it means gaining a sense of which companies view their employees as assets rather than budget line-items. Which businesses are providing training to equip staff for the future of work, paying a living wage that ensures adequate living standards, and being mindful of company culture and work-life balance considerations?
Though the focus on these issues appears to have intensified during the pandemic, these social factors tend to be less well-understood by investors due to the lack of access to transparent, high-quality data or disclosures around these issues. As economies emerge from COVID-19, it will also be important to consider the altered macroeconomic backdrop, including increased levels of government spending and debt and associated opportunities for the structural reform of national labor markets — all of which will be instrumental in shaping our working lives.
That said, active engagement with companies can go a long way toward better understanding and/or influencing corporate culture and identifying areas where a business’s future of work lags behind the times. The recent growth of ESG and sustainable assets has been accompanied by a rise in active engagement, perhaps most notably in the form of proxy voting, with investors increasingly voting against management.
Change is inevitable. One’s partners, clients, staff, future employees and shareholders demand businesses to embrace it. Given the arrival of effective vaccines, as we ultimately emerge from the pandemic, companies and sectors that rigidly adhere to the old ways of working will do so at their peril. Our lived experience tells us daily: The future of work is here. It’s an essential part of the “S” in ESG, and the investment implications of ignoring this new reality are not small.
Andrew Parry is head of sustainable investment at Newton Investment Management