Shining a new light on poverty could help put the ‘S’ back in ESG

Busi­ness­es know they need to be pur­pose-led to reflect the envi­ron­men­tal and social val­ues their cus­tomers and investors hold dear. This means they’re now start­ing to move beyond net-zero pledges to pro­vid­ing assur­ance that their goods and ser­vices are pro­vid­ed through a work­force that is treat­ed well.

Nev­er­the­less, the gap between envi­ron­men­tal and social action is huge. Even though end­ing pover­ty is the first pri­or­i­ty for the Unit­ed Nations’ Sus­tain­able Devel­op­ment agen­da for 2030, more than half (53%) of FTSE 100 com­pa­nies failed to men­tion the word pover­ty in their annu­al reports for 2019 to 2020, accord­ing to research from think tank Social Mar­ket Foun­da­tion. It claimed it was a strange omis­sion, prompt­ing an accu­sa­tion that big busi­ness is ignor­ing the ‘S’ in ESG.

Part of the rea­son for the dis­con­nect between see­ing pover­ty as an issue, and then pledg­ing action, could be that boards have tra­di­tion­al­ly not had proven, stan­dard research method­olo­gies and met­rics to detect the prob­lem and mea­sure improve­ments.

Even the offi­cial def­i­n­i­tion of pover­ty can be restric­tive. It has tra­di­tion­al­ly been applied to those liv­ing under the World Bank’s thresh­old of $1.90 (£1.61) a day or, from this autumn, $2.15 per day. Based on 2017 data, the bank reveals just under 700 mil­lion peo­ple qual­i­fy as liv­ing in pover­ty.

But look­ing at a person’s life through only a finan­cial lens miss­es the fuller pic­ture. A work­er can be above the pover­ty line but might have a large fam­i­ly, per­haps with sick par­ents, unem­ployed sib­lings and chil­dren to send to school, all on a wage that tech­ni­cal­ly takes them out of the offi­cial def­i­n­i­tion of pover­ty. 

A new approach to poverty

It was to get a more com­pre­hen­sive pic­ture of pover­ty and liv­ing stan­dards that researchers at the Uni­ver­si­ty of Oxford designed the Mul­ti­di­men­sion­al Pover­ty Index (MPI) which has been adopt­ed by the Unit­ed Nations Devel­op­ment Pro­gramme (UNDP) and is now avail­able to busi­ness­es through a spin­out called Wise Respon­der. Rather than rely sole­ly on income, the new ques­tion­naire-based approach relies on many cri­te­ria, such as qual­i­ty of hous­ing, food avail­abil­i­ty, access to edu­ca­tion, health­care and secu­ri­ty. When these more com­pre­hen­sive fac­tors are includ­ed, it becomes clear that pover­ty is far deep­er entrenched than the head­line fig­ures would sug­gest.

When the MPI was applied to three-quar­ters of the world’s pop­u­la­tion in 109 devel­op­ing regions in 2021, one in five were found to be liv­ing in mul­ti­di­men­sion­al pover­ty. The World Bank fig­ure of 700 mil­lion liv­ing in pover­ty was near­ly dou­bled to 1.3 bil­lion peo­ple.

For Jamie Coats, CEO of Wise Respon­der, the fig­ures came as lit­tle sur­prise. In his work with many large com­pa­nies that want to do the right thing by their employ­ees, he reports mul­ti­di­men­sion­al pover­ty is far high­er than boards may have orig­i­nal­ly thought.

“We’re work­ing with a group of com­pa­nies across Latin Amer­i­ca, includ­ing glob­al For­tune 500 com­pa­nies, that want a well-moti­vat­ed work­force,” he says.

“Our data shows that across Cen­tral Amer­i­ca and parts of Latin Amer­i­ca, the aver­age rate of mul­ti­di­men­sion­al pover­ty for com­pa­nies in the agri­cul­tur­al and bev­er­age indus­tries is around a third of their employ­ees. So, a sig­nif­i­cant amount of the pop­u­la­tion is strug­gling, and that impacts their busi­ness.”

By address­ing the issue and estab­lish­ing where a busi­ness can improve its work­ers’ sit­u­a­tion, Coats reveals com­pa­nies can show they care, and that has a sig­nif­i­cant impact on brand image, as well as employ­ee morale. 

“Everybody’s talk­ing about pur­pose and we’ve seen with com­pa­nies that help spe­cif­ic indi­vid­u­als, it’s cre­at­ed an esprit in the busi­ness by show­ing that it has an authen­tic pur­pose,” he says. “Employ­ees show a lot of grat­i­tude when com­pa­nies take action and that is very good for loy­al­ty.”

Measure and improve

The data from Wise Respon­der not only shows areas where mul­ti­di­men­sion­al pover­ty has been record­ed but also high­lights areas where the busi­ness may be able to help. For exam­ple, debt prob­lems can poten­tial­ly be dealt with through finan­cial advice, and access to health­care could be improved through com­pa­ny-wide health insur­ance schemes.

There are areas where a com­pa­ny can­not make an impact on its own and for these larg­er projects, such as improv­ing schools and san­i­ta­tion, com­pa­nies can work in part­ner­ship with one anoth­er, as well as with local gov­ern­ments and non-gov­ern­men­tal organ­i­sa­tions (NGOs). Although it is ear­ly days, there are already signs that this can work well when all par­ties share the same data.

“We have a part­ner in Cos­ta Rica, called Hor­i­zonte Pos­i­ti­vo, which is a busi­ness-led coali­tion of 70 com­pa­nies with approx­i­mate­ly 300,000 employ­ees,” says Coats.

“They dis­cov­ered that between them they employ just under 10% of the mul­ti­di­men­sion­al­ly poor peo­ple who live in Cos­ta Rica. They have now launched thou­sands of actions, whether that’s look­ing at pro­vid­ing edu­ca­tion, health care, help with refi­nanc­ing debt, or home improve­ments. That coali­tion of com­pa­nies is now also work­ing with a set of NGOs that can help sup­ply and sup­port those issues.”

Helping with investment

This not only improves work­er con­di­tions but is also prov­ing to be a way of show­ing investors that a busi­ness takes iden­ti­fy­ing and deal­ing with pover­ty in its work­force seri­ous­ly.

“There are now tril­lions of dol­lars that are tar­get­ed to ESG but there are just too few qual­i­ty vehi­cles to take those funds and then report back on change,” says Coats

“The finan­cial mar­kets are say­ing, if you can come to us with data, we will have a bet­ter con­ver­sa­tion about cap­i­tal allo­ca­tion. That means invest­ing in social data, along­side envi­ron­men­tal data, gives a busi­ness some­thing they can lit­er­al­ly take to the bank. Cit­i­group, for instance, has made a $500bn com­mit­ment to under­write sus­tain­able loans based on social indi­ca­tors. One of the chal­lenges around all this is that there are no stan­dards in social data. We’ve seen envi­ron­men­tal data get a lot bet­ter but social data has fall­en behind.”

Ulti­mate­ly, Coats believes social indi­ca­tors for pover­ty will begin to catch up with those for envi­ron­men­tal impact, so busi­ness­es will be able to show they have tak­en action to deal with pover­ty in their busi­ness and its sup­ply chain. This could well lead to a kitemark that com­pa­nies will be able to dis­play, to reas­sure con­sumers and investors they are act­ing on their shared val­ues of treat­ing peo­ple decent­ly. 

For those who don’t cur­rent­ly use social mea­sures, his advice is for an exec­u­tive to go out and look beyond wage lev­els and check out them­selves how work­ers are liv­ing. Do they live in decent hous­ing, can their chil­dren go to school, are they healthy, do they get enough food, are there hos­pi­tals they can use and do they suf­fer dis­crim­i­na­tion?

For those who can’t get out and see work­ers’ home con­di­tions, here’s a tip. Walk around the can­teen at one of your company’s bases and just ask peo­ple if the lunch they are cur­rent­ly enjoy­ing will be their only meal of the day. Feed­back from exec­u­tives from large, glob­al com­pa­nies has so far been that most are sur­prised by how many rely on the work can­teen for their main, often only, meal of the day. 

Just fol­low­ing a tick-box exer­cise of ensur­ing wages are above the World Bank’s low­est lim­it would nev­er show this social aspect of mul­ti­di­men­sion­al pover­ty that is more preva­lent than exec­u­tives realise, until they com­mit to mea­sure it, and take action.