Migration Watch

Integrating Migrants into ESG Analysis

Responsible investors must make migrants a more explicit consideration in their ESG analysis

Read the Full Article in ESG Magazine’s December issue.

Heather Hachigian |

Reports of close to 20 million refugees worldwide in 2015, coupled with horrific images of their journeys and deplorable living conditions upon arrival, have inspired many business leaders to respond to the refugee integration challenge. President Obama’s Call to Action was met with an outpouring of commitments from the private sector to provide employment, education and other supports for refugees. Commitments are beginning to extend beyond corporate philanthropy, with several new social impact bonds, investment funds and micro-loan programs for refugee integration.

While encouraging, these pledges are a drop in the bucket relative to what is required to address urgent issues around global migration. Forcibly displaced persons – including refugees –  are the most visible in the media, but they only make up 20% of total global migrants. With over 240 million migrants worldwide in 2015, representing a 40% increase since 2000, migration can significantly impact global financial markets. Indeed, migrants – not just refugees –  are often excluded from financial and economic opportunities in their new host societies, which can contribute to weak firm performance due to inefficiencies in labour market matching and broader ‘systems-level’ risks related to lack of social cohesion and diversity.

These are just some of the migrant integration issues that responsible investors will need to incorporate into their investment analysis.  However, a review of the shortlisted responsible investment reports for the large asset owners award category in 2015, a year when migration was identified as one of the major factors shaping the global economy, finds that migrant issues have not yet made their way onto the RI agenda.

To be sure, some shortlisted asset owners, such as Allianz, reference migrants in relation to financial inclusion. And last year witnessed some pension funds in Australia and Europe divest from privately-operated migrant detention centres for human rights abuses.

But migration issues extend well beyond the Syrian refugee crisis and the recent wave of anti-immigrant rhetoric that has inspired destabilizing political events such as Brexit. Migrant integration is a concern for all long-term investors: initial settlement can impose an economic burden but, if successfully integrated, migrants can generate several dividends in the long-term.[1] As such, migrant issues will need to be considered across all asset classes and investment strategies, just as gender and climate change are now understood to be interconnected with a range of environmental, social and governance (ESG) issues.

Consider, for example, the litigation and reputation risks associated with forced migrant workers. At a broader level, many investors already engage companies on forced workers. But migrants are vulnerable in ways that other forced workers are not.  To address these vulnerabilities, including language barriers and dependence on employers for immigration status, Hewlett Packard (HP) has adopted a supply-chain policy that requires employers to provide translation and implement safeguards to prevent the use of deportation threats. And to address the most explicit form of forced labour, Mercy Investment Services has engaged with companies in the hospitality and transportation sectors to help identify instances of human trafficking.

Another migrant group that is vulnerable to exploitation by employers is temporary foreign workers. While some labour unions – most recently, Labourers’ International Union of North America –  are engaging with policymakers to change exploitive employer practices, labour-sponsored pension funds are largely missing from these discussions. For those companies that rely on exploitive employment practices, policy changes would significantly undermine their business model.

In addition to risks, migration presents several untapped investment opportunities. Over two thirds of migrants re-settle in high-income countries, many of which face an ageing workforce. [2] Migrants can help to fill these labour market shortages, while also bringing innovative ideas and new trade relationships with foreign markets in an era of low domestic growth. Unfortunately, migrants often face incredible hurdles to gaining employment, due to discrepancies in credential recognition, language barriers and differences in workplace culture, among others.

To tap into these opportunities, responsible investors can engage with companies to encourage the adoption of migrant-friendly recruiting, hiring and retention practices, such as mentoring programs for migrants and cultural diversity training for all employees. Indeed, “employing a culturally diverse workforce is no longer just the ‘right thing to do.’ In today’s economy… employers who open their doors to international talent can gain competitive advantage over those who do not.”[3]

At the board level, empirical evidence supports the theory that diverse talent leads to better decision-making and enhanced employee engagement, among other benefits.[4] Using corporate engagement on gender diversity as a framework, responsible investors can encourage companies to promote cultural diversity in board nomination and recruitment practices.

Returning to refugees, responsible investors have a key role to play in preventing crisis situations that lead to forcible displacement in the first place. Environmental degradation at the hands of mining companies, for example, can contribute to resource scarcity and political instability that forces vulnerable populations to flee their countries. Corporate engagement on the environment and human rights should incorporate these cross-cutting migration issues, much in the same way that investors are beginning to incorporate gender issues into a wide range of ESG issues.

As migration continues to shape the global economy, all investors will need to better understand the links between their investment portfolios and more inclusive and integrated societies. Responsible investors already have many of the tools and frameworks necessary to understand and act on these linkages. The task now is to adapt these strategies to make migrants a stronger, more explicit consideration in their ESG analysis.[5]

Notes:

[1] Refugees Work: A Humanitarian Investment that Yields Economic Dividends, Tent Foundation and Open Political Economy Network, May 2016.

[2] International Migration Outlook (2016) OECD Publishing, Paris. DOI:10.1787/migr_outlook-2016-en

[3] Immigrant-Friendly Businesses: Effective Practices for Attracting, Integrating, and Retaining Immigrants in Canadian Workplaces (2009) Conference Board of Canada, p. 4.

[4] Diversity Matters (2014) McKinsey & Company. Available at: http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

[5] For more information and examples of how investors are integrating migrants into their ESG criteria, see www.financeforintegration.com.