Rebalancing for Social & Human Capital

It seems that social-focused investments are getting a raw deal. Don’t get me wrong, it is vital that we all collaborate on reducing the world’s carbon footprint. However, what’s the point of achieving net zero if most of the world’s population get poorer, more malnourished, less healthy, and sadder?

Harder to Integrate Social Issues 

The focus on social issues in responsible investment has always been less than the focus on environmental issues, except in sovereign debt investing. When Matt Orsagh and I ran 23 workshops across 17 major markets and surveyed over 1,100 financial professionals during 2017 and 2018 (this was when we were working for the CFA Institute and PRI respectively), most investors said that it was harder to integrate social issues than environmental issues.

The main reasons given was that there was a smaller dataset for social issues and that social issues are difficult to quantify. Social issues are often considered by investors, however investors tend to expect companies to meet a minimum standard and not violate international norms. This can lead to a tick-box exercises and reliance on negative screens rather than requiring deep analysis in some sectors or allocating capital in social-focused investments.

Investment Opportunities 

At RISE, we believe that the allocation of sustainable investments needs to be shifted towards social and human capital. Not only because investments are necessary to improve the standard of living, education, health and wellbeing of communities and nations. It is also the case that investment opportunities in social and human capital are likely to expand and need funding.

According to the US-based Global Wellness Institute, the global wellness industry reached $5.6 trillion in 2022, up from $4.9 trillion in 2019. Furthermore, they predict that there will be 8.6% average annual growth until 2027. This offers great investment opportunities in ‘Personal Care & Beauty’, ‘Healthy Eating, Nutrition, & Weight Loss’, ‘Traditional & Complementary Medicine’, and other healthcare sub-sectors.

Hand-in-Hand 

Investing in social and human capital often requires factoring in the impact on climate and natural capital and vice versa. For instance, social housing needs to consider futureproofing against the energy transition. The electrification of the power grid needs to consider the affordability of electricity especially for the low-income population. Hence when investing in a fairer, healthier, and happier society, we are also investing in a healthier and happier planet.