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Investing with Balance in Mind

As investors increasingly engage with companies on health-related themes, industry experts are urging them to consider mental health. 

Just as it’s important for people to take care of their physical condition to ensure a high-quality and long life, it’s also vital to account for mental wellbeing.  

But it unfortunately remains one of the most neglected areas of public health.  

Depression is now recognised as a common illness worldwide, with an estimated 3.8% of the population affected in 2021, according to the World Health Organisation (WHO). If untreated and unmanaged, depression can lead to suicide, with the WHO noting that over 700,000 people die this way every year. Suicide is the fourth leading cause of death in people aged 15-29. 

However, mental health is “a forgotten part of ESG” for most companies and investors, says James Alexander, CEO of the UK Sustainable Investment and Finance Association (UKSIF). 

“But people don’t live in silos. What happens at home can affect what happens at work and vice versa,” he tells ESG Investor 

Like many other ESG risks, firms’ failure to address mental health can have negative systemic and societal consequences, as well as more direct costs to employers and employees.  

“Creating a positive environment for mental health in the workplace costs significantly less than failing to do so,” says Amy Browne, Stewardship Lead at UK-based charity investment manager CCLA Investment Management. 

An unhappy workforce is an expensive workforce. For UK-based companies, the estimated total annual costs of employee absenteeism, presenteeism and labour turnover has increased by 25% since 2019 to an estimated annual total of £53-£56 billion in 2021, according to a 2022 report by Big Four accountancy firm Deloitte. Poor mental health was a key contributor to this escalation, Deloitte said.  

The accountancy firm further calculated employers are seeing an average return of £5.30 for every £1 invested in staff mental health. 

Employers can invest in providing support to improve the mental health of employees through measures such as screening, training, promoting general awareness of mental health, and targeted interventions or personal therapy,” Browne says. 

Investors are increasingly concerned about investee companies’ contributions to staff mental wellbeing. However, the data they need to make their assessments remains thin on the ground. 

UK pension fund Railpen, the Pensions and Lifetime Savings Association and the Chartered Institute of Personnel and Development, an association for HR professionals, analysed the quality of workplace disclosures in the 2021 annual reports of FTSE 100 companies around social themes.  

They found that only 13% of these reports discussed mental wellbeing, highlighting that it is not prioritised to the same degree as physical health, despite its links to absenteeism and productivity.  

To ensure companies are increasingly collating the needed information, and addressing the issue, mental health should be a feature of investor engagements with all companies across all sectors, emphasises Alexander.  

“That’s doesn’t mean focusing only on employees in office buildings,” he warns. “Investors need a clear understanding of the mental health support for the key workers that kept the world going during the Covid-19 pandemic, the workers out on the shop floor, on construction sites, and those spanning investee companies’ supply chains.”  

Benchmarking progress 

One example of investors working to improve investee companies’ focus on and disclosure of mental health-related data is a collaborative initiative started by CCLA.  

“When CCLA began its mental health programme in early 2019, we were repeatedly told we were the only investor asking companies about mental health,” says Browne.  

In April 2020, CCLA formed an engagement coalition made up of investors with £2.2 trillion in assets under management (AUM), writing on their behalf to the CEO of every FTSE 100 company, calling on them to protect the mental health of their 4.7 million employees during the pandemic.  

Of the 74 firms that responded, there was a “wide disparity” in the quality of disclosures on mental health, Browne explains, and “few signs” of a concerted structural focus on mental health within companies, in sharp contrast to companies’ focus on physical health and safety measures. 

This highlighted the need for a tool to help investors better assess the mental health-related performance of investee companies, which would, in turn, improve the quality of disclosures, Browne tells ESG Investor 

“Mental health is a systemic problem, as opposed to a company-specific problem, and not something that we’re going to be able to solve through one-on-one dialogue with companies.” 

That insight led to the idea of building a benchmark for investors to be able to assess and compare companies on their approach annually, Browne explains. 

The benchmark aims to drive transparency on mental health-related corporate disclosures, define key expectations on workplace mental health, equip investors and other stakeholders with a tool to measure progress, and ensure that corporate efforts are actually directed towards activities that positively support the mental health of employees. Crucially, it will serve as an effective accountability mechanism for investors to use when assessing companies. 

In 2020, CCLA appointed specialist advisory firm Chronos Sustainability to provide technical guidance on the development and implementation of the benchmark. 

The CCLA Corporate Mental Health Benchmark UK 100 will be published next month, providing an assessment of the largest 100 UK-listed companies with more than 10,000 employees. The Global 100 equivalent will be published later this year.  

In December, CCLA published a pilot benchmark report, which pitted 30 FTSE 100 companies against 27 criteria across four core sub-themes: management commitment and policy, governance and management, innovation and leadership, and performance reporting and impact.  

Companies assessed scored an average of 55%, which confirms that mental health is at least on the business agenda. However, there was a big discrepancy in scores, which demonstrated the divergence and inconsistencies in current corporate disclosures and policies, with a range of 15% to 88%.  

Only 16 (53%) of the companies assessed had formalised their approach to workplace mental health through an overarching policy, the pilot report noted, indicating that workplace mental health is still an underdeveloped business concern for a number of employers.  

“Mental health is a difficult and somewhat nebulous topic; neither easily defined nor well understood,” says CCLA’s Browne. 

“We are not mental health experts, but with the help of an expert panel, we are beginning to make headway on how companies can provide the conditions under which mental health can thrive.” 

The CCLA Expert Advisory Panel includes members such as UK charity Mind CEO Paul Farmer and the UN-convened Principles for Responsible Investment.  

Under the skin 

By engaging with companies on their approach to mental health in the workplace, investors can also gain a clearer understanding of how investee companies are tackling other social-related issues.  

“Mental health inevitably shines a light on the way employees are treated,” says UKSIF’s Alexander. “Fair pay, employment security, diversity and inclusion – these are all factors that can have a huge impact on mental health.”  

If employees’ mental health is not being considered by the company, through an explicit policy or assistance programme, then what other social-related factors are being overlooked, he asks. 

“Mental health problems can be caused or exacerbated by work, for example by overwork, stress, workplace bullying or harassment,” agrees Jessica Attard, Head of Health Programme Development at UK NGO ShareAction.  

“They can also arise from low pay and insecure hours causing chronic stress which quickly tips into physical health problems like high blood pressure. It can be easy to forget that the fundamentals of good work are critically important in ensuring good mental health of employees.” 

To help investors coordinate their efforts to improve corporate disclosures on health, ShareAction is in the process of developing its Long-term Investors in People’s Health (LIPH) programme. It is supported by The Health Foundation and the Guy’s & St Thomas’ Foundation.  

LIPH aims to drive up investment standards to reduce health inequalities in the workplace, including awareness of mental health. The programme’s overall ambitions also include pushing for a public policy debate about how investors can play a role in tackling health-related concerns.  

“The current status quo within the investment system is undermining health outcomes,” ShareAction warned in a briefing for asset owners. “This may lead to indirect costs to asset owners over and above the weaker long-term returns that may be expected as a result of a less healthy population.” 

The NGO has outlined specific recommendations for asset owners incorporating health into their responsible investment approach. These include influencing their asset managers’ stewardship policies, supporting the development of disclosure frameworks and data sets, and increasing corporate engagement on a plethora of health-related topics, such as mental health and health-related political lobbying.  

“We’re also developing a ‘how-to’ toolkit with examples of good practice and key metrics, and we’ll be providing opportunities for future collaborative corporate engagement and working with policymakers to strengthen corporate reporting on health,” Attard tells ESG Investor.  

Working together 

Based on its pilot report findings, CCLA has also put together recommendations for investors to implement within their engagements with investee companies on mental health.  

As well as encouraging companies to use the CCLA benchmark as a structure to inform the information they collate, the recommendations suggest investors should ask companies to survey employees on the company approach to mental health, and, if applicable, report on the effectiveness of any workplace mental health programmes they have implemented. 

While investors are increasingly working together to develop their understanding of mental health issues, they are also working collaboratively with corporates to the same end.  

CCLA, amongst others, is a signatory of the Global Business Collaboration, a business-led initiative, founded by companies such as HSBC, bp and Unilever, which has committed to creating mentally healthy workplaces and regularly measuring and reporting on the impact of their efforts.  

“As we look to rebuild from the Covid-19 pandemic, the business community must prioritise and invest in the mental health of all employees – this is not just a business initiative, but a social imperative that will drive positive and long-lasting effects for society,” said Alan Jope, CEO of Unilever.  

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