Although social inequalities narrowed during the first half of the 20th century, since the 1980s they have been widening globally. Inequality is now recognised as a critical issue and the pandemic has only reinforced the impact of poverty, health inequality and vast disparities in wealth.
Greater awareness has been promoted by recent suggested changes in policy at the US Federal Reserve that would see it focus on inequality rather than inflation. While reducing social inequality is mostly a political issue, by investing selectively in companies that score highly on equality measures, investors can have an impact.
There is no single definition of inequality, but there are several universally recognised factors that contribute to its widening or narrowing, such as access to education and healthcare, remuneration and tax policy, human rights, diversity and labour practices.
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We believe that if companies address these concerns they will prosper in the long term and gradually bring about a more sustainable and socially responsible investment universe producing stable returns for investors.
A responsible chipmaker
One stock proving the claim that more socially-responsible companies are likely to enjoy a better financial performance is Taiwan Semiconductor Manufacturing Company (Taipei: 2330), known as TSMC. TSMC makes almost 50% of the world’s microchips for smartphones, electric vehicles and other hardware.
The company has been able to ride on the coat-tails of the booming global tech sector to gain a significant share of the market, but its own growth has also been driven by a deliberate effort to invest in tackling income inequality across the business, making it an attractive place to work and luring talent from competitors in the region.
It has a good CEO pay ratio (the gulf between the pay of the median worker and the boss does not appear excessive); provides its workers with superior working conditions and benefits; and insists that the whole supply chain adheres to its strict welfare standards. It is therefore well positioned to continue to take market share and grow with rapid tech development globally.
Global insurer Axa SA (Paris: CS) has the wind in its sails after making good progress on the acquisition of rival XL Group. But it was also recently named the second-most responsible insurer worldwide (it is number two in the Dow Jones Sustainability index), with one of the criteria relating to social impact. The business scores highly on diversity and tax policy, with women making up 54% of the workforce and the business adhering to Organisation for Economic Co-operation and Development taxation guidelines.
Because we are all worth it
Another business that has excelled in its approach to diversity and innovated in ways that do not discriminate by gender or social background is L’Oréal SA (Paris: OR). It has consistently reported strong growth in recent years.
It is well positioned to take advantage of the rising popularity of health and beauty products in the Asian market, with a strong presence in China. But the group has also managed to maintain its impressive approach to human rights and diversity on a global scale. Its gender pay-gap, moreover, has slipped from 10% in 2007 to 2%.
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