Good Jobs: the next frontier in measuring the “S” in ESG

Matt Ripley Fri, November 12th, 2021

Social issues are coming into sharper relief for both businesses and investors, not least because COVID-19 has shined a light on how companies treat their workforces. With UK unemployment low, it is the quality of jobs that matters as much as their quantity. A recent poll found that half of the UK public ranked better jobs as their top priority for the government’s levelling up agenda.

Good jobs bring decent pay, job security and work fulfilment. It is widely recognised that low quality jobs and the accompanying financial and mental pressures are a key underlying cause of inequality. Even before the pandemic, one in eight workers was living in poverty and 70% were ‘chronically broke’. Good job creation can help tackle poor health, housing and the high levels of poverty that persist in the UK.

As job growth accelerates in the post-Covid economic recovery, it is clear the UK needs to create a more equitable distribution of good job opportunities that can raise living standards, help tackle inequalities and improve social cohesion and wellbeing.

Investing in SMEs as a driver of good job creation

While much of the ESG discourse focuses on measuring larger corporates’ performance, smaller companies are the backbone of the UK economy and a significant driver of job creation. SMEs account for three fifths of UK private sector employment. In the years leading up to the pandemic they created three times as many jobs as larger firms.

This underscores the need for greater investment in SMEs that deliver good jobs for everyone. In The Good Economy’s recent paper Scaling up institutional investment for place-based impact, we highlighted the need for a greater allocation of investment capital to UK real economy sectors, including SME finance. Here it is encouraging to see recent trends towards private capital markets allocations, including venture capital, debt and private equity funds.

But it is difficult for private market investors to know whether they are supporting good job creation in line with Sustainable Development Goal (SDG) 8 on Decent Work. Jobs measurement presents practical challenges in accessing data from SMEs and mid-market firms that are not required to disclose information publicly in the same way as larger, listed companies.

Measuring what matters when it comes to job creation

Current ways of capturing job-related ESG impacts are one-dimensional. They focus only on the number of jobs created. This ignores the fact that low-quality new jobs – ones that are low-paid and insecure - keep people locked into cycles of poverty and poor wellbeing.

But a focus on ‘better’ jobs should not come at the expense of the ‘more’ jobs agenda, particularly in the context of fundamental transitions that are already taking place in the world of work. Long-term trends in technology and the shift to a low-carbon economy will create new opportunities but also threaten occupations and industries - often in areas that are already ‘left behind’.

The UK is not alone in facing the challenge of creating more and better job opportunities in the post-Covid recovery. However, this challenge is particularly great in the UK (and the US) because social and regional inequality is more extreme than in other OECD countries. Accordingly, the UK’s need for higher levels of good job creation varies significantly across sectors and communities. Attention to what type of jobs are being created, who can access these jobs, and where opportunities are located is key to ‘building back better’ in a way that drives sustainable development, long-term prosperity and individual wellbeing.

Towards a 3D view of jobs

The Good Economy has developed an approach to help investors track and report whether they are supporting the creation of quality employment opportunities, particularly in places where good jobs are relatively scarce.

A Good Jobs lens assesses portfolios across a suite of metrics. These include the sustainability of job growth, wages and working conditions and the geography of where job opportunities are located. To overcome data constraints the assessment combines socio-economic, sector-level and company-reported information. These insights can also be integrated with company-level surveys to get a direct understanding of job quality.

Armed with a better understanding of their contribution to good job creation, private market ESG and impact funds can be more intentional in directing capital towards companies that contribute to the core ambition set out in the UK’s Good Work Plan - that everyone should be able to benefit from high quality jobs, regardless of where they live.

Our Publications
Factsheet Good Jobs Rating Factsheet Download a two-page Factsheet outlining the methodology behind our Good Jobs Rating tool
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Our Publications
White Paper Scaling up institutional investment for place-based impact: White Paper (May 2021) The full white paper developed by The Good Economy for the Place-Based Impact Investing Project, a partnership of The Good Economy, the Impact Investing Institute and Pensions for Purpose
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