Social dimension of green finance Covid-19 shines spotlight on companies’ vulnerable employment in supply chains
Authors
Hitaj C., Popescu I.S., Schaubroeck T., Gibon T.
Reference
Sustainable Finance and the Global Health Crisis, pp. 241-278, 2023
Description
Sustainable finance is booming and with it the practice of impact washing - sustainability claims of investment managers that cannot be supported by real evidence. Despite recent regulatory pushes, notably the EU sustainable finance taxonomy, measurement of and reporting on social impacts is not yet standardized and lags behind environmental impact reporting in the financial investment field. As a source for social indicators, we propose using country-industry social impact factors, built on input-output life-cycle inventories, and linking these to companies and their financing instruments, using revenue as proxy for economic activity. “Persons in vulnerable employment” is just one of the many quantifiable indicators from the life-cycle assessment methodology that can be used to measure social impacts of companies and investment funds. Using a sample of over 17, 000 stocks, we study direct and indirect (supply chain) impacts and trade-offs between life-cycle (cradle-to-gate) GHG emissions and vulnerable employment. We find that the 17, 000 publicly traded companies are responsible for almost 300 million people in vulnerable employment, a number that more than doubles when adding supply-chain exposure to vulnerable employment. Our measure of direct and indirect vulnerable employment only poorly correlates with existing social impact scores of rating agencies that tend to focus on the social performance of direct company operations rather than their human rights performance in their supply chain. A more complete accounting of social impacts in supply chains would increase the true sustainability of companies and is particularly important as investors react to the poor treatment of workers uncovered during the Covid-19 pandemic and as investments are being redirected to support the transition to net-zero emissions.
