Equal Pay Prime Opportunity for Boosting ‘S’ in ESG | ETF Trends

Amid evolution in the environmental, social, and governance (ESG) space, focus is shifting to the “social” aspect. In fact, more asset allocators and fund managers are demanding that companies place more emphasis on social matters.

Of the three ESG categories, “social” is arguably the widest-ranging and the one with the most fluidity. It is, however, clear that it includes diversity, equity, and inclusion (DEI) issues, indicating that exchange traded funds such as the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (NYSE Arca: CDEI) are relevant at a time when social issues are in focus.

One of the social areas of current emphasis — one that speaks to governance issues as well — is equal pay. Put simply, companies need to address obvious pay gaps that appear across race and gender lines. Those that embrace equal pay concepts have the potential to better attract and retain top talent, potentially elevating shareholder returns. Companies that don’t do so risk trailing rivals and possibly attracting ESG controversy.

“S in ESG relates to the social aspect of sustainable investment, covering ways in which organizations interact with their employees and the communities within which they operate. ESG initiatives are essential to both financial performance and brand reputation,” according to JD Supra.

Equal Pay Pertinent to ESG’s ‘S’

CDEI isn’t a dedicated equal pay ETF. However, the fund’s emphasis on DEI issues positions investors to potentially benefit from member firms emphasizing equitable pay standards. There are benefits to equal pay, and that could compel more companies to compensate their employees fairly.

“The benefits of pay equity are undeniable, providing employers with the opportunity to exceed financial targets, attract talent and innovate effectively. To remain competitive, pay equity must be a priority for all employers,” noted JD Supra.

The relevance of CDEI in the current environment is heightened by the fact that asset managers, fund managers, and other large institutional investors aren’t just demanding plans to address social issues. They also want to see tangible evidence that those steps are being taken and that they’re bearing fruit.

There are also legal ramifications for companies to consider. Since passage of the Civil Rights Act of 1964 and the Lilly Ledbetter Fair Pay Act of 2009, more states have passed their own equal pay regulations. This example confirms that companies are better off embracing equal pay rather than drawing the ire of state and federal regulators.

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