Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Advisers beware: Social issues the new ESG frontier
Financial advisers need to take note. They will have to factor in companies taking far greater interest in social issues – the S in ESG – when making their investment decisions for clients. What is open to debate is whether these decisions on social issues will potentially be positive or negative for the share price. What can’t be denied is that companies are making them.
To illustrate how the S is playing a more significant role in corporate Australia, a little history lesson is in order. In 1996, an unknown parliamentarian from Queensland rose in the House of Representatives to make her maiden speech. What Pauline Hanson said, among other things, jolted the nation that largely believed the anti-Asian rhetoric of the 1980s was a thing of the past.
“I and most Australians want our immigration policy radically reviewed and that of multiculturalism abolished. I believe we are in danger of being swamped by Asians. Between 1984 and 1995, 40 per cent of all migrants coming into this country were of Asian origin. They have their own culture and religion, form ghettos and do not assimilate.”
Despite the condemnation of her views from all sides of Parliament, as well as outside the parliamentary arena, Hanson knew she has struck a chord with a minority of Australians and would not retreat. Yet a business community (especially the giant mining houses) that was commercially benefiting from our increased ties with Asia was largely mute on the issue.
Finally, no less a business leader that Sir Roderick Carnegie, who had been Managing Director of CRA (now Rio Tinto) from 1974 to 1986, used an interview with The Australian to point out the bleeding obvious – Hanson’s anti-Asian bile had the potential to doing irreparable damage to Australia’s maturing relationships with the countries to our north. It could have geopolitical as well as commercial consequences.
But finding other business leaders to endorse his thoughtful comments proved a fruitless journalistic exercise. Aside from a few Jewish business people, they went to ground faster than a prairie dog on hearing danger approach. Hanson might have been a rogue independent, but her nativist views unhelpful in a changing Australia. But go on the public record to rebuke her views – no thanks.
Fast forward nearly 25 years, and about one month after the tragic events in the Middle East had unfolded, and the business community was prominent in signing an open letter denouncing antisemitism and calling for all Australians to be treated with respect, inclusivity, and dignity. The open letter, published in mainstream media, ran as a prominent double-page advertisement linking to a website titled “Say No to Antisemitism”.
Before the Middle East crisis erupted, many major companies decided to endorse the Voice. When the polls had the Yes vote in a clear majority, that seemed a sound option. By referendum day, the No vote was 60 per cent and every State voted against it. Now it looked like it was business that had misread the mood of the average Australian, and politicians such as Liberal Party leader Peter Dutton were more in touch.
Now, these companies must explain to their shareholders – many of whom voted against the Voice – why they expended time and money supporting this campaign. It also put them offside with much of the Conversative side of politics.
What it potentially means is that a company’s decision to take stance on a social issue does not necessarily translate in shareholder and broader community support – contrary to the thinking behind social activism that contends it enhances a company’s license to operate, thereby improving its capacity to achieve its corporate goals.
Typically, social issues encompass the fair treatment of employees, providing equal opportunities, and working to address social disparities. But it can also spread to wider social issues such as the Voice and gay marriage. [With the latter, business advocating a Yes vote was on much safer ground as there was strong community support for same-sex marriages.]
Advocates for companies having a strong social sustainability performance argue it reduces risk, improves financial performance, and has a positive impact on the wider community. Indeed, companies that fail to do so will not fulfil their full potential as supporting and respecting human capital is a key ingredient for success.
But as The Voice demonstrated, community attitudes on social issues can vary widely, and companies taking a public stand on such issues can expect to receive, to a lesser or greater degree, public opprobrium. What the adviser must determine is whether that opprobrium will impact the share price.
