This post continues a series on worker financial security and the strategies that Commonwealth is exploring–from shareholder activism to working directly with C-suite leadership–to support it.

• Leveraging Investors to Boost Employee Financial Security
• Promoting Financial Security through Active Ownership
• The Critical Role of Business Executives in Employee Financial Security

EXECUTIVE SUMMARY

A lack of standardized social metrics, specifically around employee financial security (such as access to emergency savings), presents a significant opportunity for investors to better evaluate the companies they fund. Given the increasing emphasis among corporate executives on serving all stakeholders, the timing is right for investors to push for better measurement of employee financial security benefits and other social factors.

Impact investing is growing in popularity. In today’s market, investors can fund companies that align with their values or have made demonstrable efforts toward issues like environmental protection or worker treatment. Investors are also increasingly expecting values-based investments to have a material upside–and there is growing evidence to suggest that this is often the case. Social values and profits are not mutually exclusive.

ESG Investing and Social Metrics

In our exploration of impact investing, we looked to ESG (Environmental, Social, Governance) criteria as an example. Commonwealth is researching ESG and learning about the state of impact investing from investors and academic experts.

ESG criteria are the factors used to assess a company’s sustainability, predict future risk, and compare companies for investors. Researchers have increasingly found evidence that companies that rate highly along ESG criteria have better long-term outcomes than those that don’t.

A key finding from our research thus far is that there is no standard, widely used set of metrics for the social aspect of ESG. While there are a handful of common measures of “S” (social) factors, such as occupational safety, supply chain concerns, corporate volunteerism, and “human capital management,” the limited social criteria that do exist are fairly narrow in scope.

“Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.” – Business Roundtable Statement on the Purpose of a Corporation

Particularly, there is a lack of standardized employee financial security metrics, as highlighted in a previous post, including employee access to emergency savings. Our research substantiates that there is a material upside to employee financial security, making this gap a missed opportunity for investors.

The Business and Social Benefit of Reducing Employee Financial Stress

As we’ve found in our extensive research on lower-wage workers, financial insecurity has a significant impact on stress and productivity. Although emergency savings is not a panacea for solving financial insecurity, it can provide a cushion for stability when life happens–e.g., a flat tire, a beloved pet falling ill, a home appliance breaking down. Emergency savings can also circumvent the need for short-term, high-interest loans and help potential borrowers avoid relying on credit and accumulating debt. This means that employees, employers, financial institutions, policy makers, and nonprofits all share a vested interest in ensuring employees’ access to emergency savings is prioritized by companies and investors. Business leaders themselves are increasingly turning their attention to the needs of all stakeholders, exemplified in the Business Roundtable’s revised “Statement on the Purpose of a Corporation.” In the statement, 180 business leaders from major corporations commit to “investing in employees” by “compensating them fairly,” “providing important benefits,” and “supporting them through training and education that help develop new skills for a rapidly changing world.”

Early Leaders in Defining Financial Security and Other Social Metrics

We are encouraged by investors who are already advocating for improved measurement of social metrics and employee financial security. A small group of investors have joined the Impact Management Project (IMP), a forum that is working to build consensus around the measurement of corporate social and environmental impact. There are also a number of industry leaders working to improve social and financial security metrics, including:

B Lab: B Lab is a nonprofit that serves a global movement of people using business as a force for good. B Lab certifies businesses as “B-corps” through a thorough application based on the impact of their decisions on their workers, customers, suppliers, community, and the environment.

JUST Capital: JUST Capital measures and ranks companies on the issues Americans care about most so that people, armed with the right information, will buy from, invest in, work for, and otherwise support companies that align with their values.

B Lab and JUST Capital take into account wages (e.g., living wages, CEO to median worker pay ratio, etc.), access to benefits like health insurance and retirement, work-life balance practices such as fair scheduling and flexible working hours, and more. B Lab in particular emphasizes employee ownership and profit-sharing. However, the employees who would benefit most from financial security employer offerings are unlikely to receive access to them: very few large employers of hourly or low-to-medium income workers are certified as B Corps. Employee access to emergency savings are also not measured by either company.

Conclusion

Based on our research, the lack of standardized social metrics around employee financial security and emergency savings is a major opportunity for investors. And with growing corporate support for serving all stakeholders, there has never been a better time for investors to leverage their influence to advocate for better social metrics.  A standard set of metrics would enable investors to make more informed comparisons between companies and for companies to adequately track themselves against their competitors. Bringing to light meaningful differences between companies would both support employees and provide investors with clearer insight into the sustainability and stability of their investments.

Join Us in the Conversation

At Commonwealth, we believe that reliable employee financial security metrics are important to sustaining system impact. We are continuing to speak with investors on how they can measure the financial security of a workforce and eventually use that criteria in their investment decisions. We are also pushing the envelope in thinking about the types of investors, including institutional investors, impact investors, and private equity firms, who have a role to play in this space.

If you are an investor or firm working on this, please contact Nick Maynard at info@buildcommonwealth.org.