November 2024
Integrating Social Issues into Investment Research
Rob Wilson, Director of Global ESG Integration at MFS, delves into the use of increasingly available labor data to question corporate management and help make long-term investment decisions.
Authors
Vishal Hindocha
Global Head of Investment Solutions
Robert M. Wilson, Jr.
Director of Global ESG Integration
Beyond solely analysing financial metrics, we believe investors should consider social factors in their valuation analysis. In our view, companies that respect human rights and prioritize worker safety are more likely to endure, and therefore make a better investment. Investing with a social lens applies to developed countries as well as emerging markets. The treatment and experience of employees are relevant to modelling a company’s cost base looking forward, when calculating changes to workers’ salaries, for example.
Investors may not see the complete picture if they rely only on corporate ESG disclosures to assess companies. Increasingly available labor data can offer more substantial insights into a company’s adherence to ethical standards. Without quantitative data such as workforce diversity or employee turnover, it becomes challenging to fully understand a company’s situation. A data-driven approach also helps when engaging with corporate management and differentiating between companies in the same sector to identify those with existing or potential labor issues.
The increase in disclosures and data creates a good environment for investors who are willing to dig deeper and work together. Bringing together portfolio managers and engagement specialists in a collaborative way can help identify arbitrage opportunities or better materiality discovery when evaluating the long-term thesis for a company. We believe there is substantial potential for investors willing to integrate these social factors into their investment decisions.
We welcome the opportunity to discuss sustainability themes with you. Please contact allangles@mfs.com and we will be happy to help.
MFS may incorporate environmental, social, or governance (ESG) factors into its investment decision making, fundamental investment analysis and engagement activities when communicating with issuers. The statements or examples provided above illustrate certain ways that MFS has historically incorporated ESG factors when analyzing or engaging with certain issuers but they are not intended to imply that favorable investment, ESG outcomes or engagement outcomes are guaranteed in all situations or in any individual situation. Engagements typically consist of a series of communications that are ongoing and often protracted, and may not necessarily result in changes to any issuer’s ESG-related practices. Issuer outcomes are based on many factors and favorable investment or engagement outcomes, including those described above, may be unrelated to MFS analysis or activities. The degree to which MFS incorporates ESG factors into its investment decision making, investment analysis and/or engagement activities will vary by strategy, product, and asset class, and may also vary over time, and will generally be determined based on MFS’ opinion of the relevance and materiality of the specific ESG factors (which may differ from judgments or opinions of third-parties, including investors). Any examples above may not be representative of ESG factors used in the management of any investor’s portfolio. Any ESG assessments or incorporation of ESG factors by MFS may be reliant on data received from third-parties (including investee companies and ESG data vendors), which may be inaccurate, incomplete, inconsistent, out-of-date or estimated, or only consider certain ESG aspects (rather than looking at the entire sustainability profile and actions of an investment or its value chain), and as such, may adversely impact MFS’ analysis of the ESG factors relevant to an investment. The information included above, as well as individual companies and/or securities mentioned, should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.
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