In the upcoming Inequality Series, Calvert will examine the challenges posed by this critical social issue, covering them by measuring inequality factors, best practices for companies and how this issue should be considered in an investment context. Stay tuned for additional insights from our team on the first Friday of every month.
Washington -- The rapid spread of COVID-19 has not only demonstrated the importance of building resilience for similar threats, but also how a widening inequality gap can be exacerbated in times of crisis.
While the recovery from the 2007-2008 global financial crisis has relegated economic growth back to its precrisis levels, Organization for Economic Cooperation and Development (OECD) countries1 have reached unprecedented levels of income and wealth inequality since the 1980s. Beyond income and wealth, education, health and employment are also critical societal outcomes, where we currently observe staggering levels of inequality. Inequality is a systemic issue with a high social and financial cost and, as such, it needs to be comprehensively understood and managed. While discussion around the costly effects of inequality has increased with the rise of ESG, the recent unfolding of the COVID-19 pandemic has shed an entirely different and unprecedented light on the problem. In times like these, with clear negative consequences for people's lives and the economy, inequality must be dealt with through bold and innovative efforts, and in collaboration between the private and public sectors.
Calvert decided to direct its efforts toward understanding the drivers of inequality and identifying practical avenues for addressing the issue - a challenging task because the phenomenon of inequality is self-perpetuating, entrenched in different self-reinforcing cycles that make it extremely difficult to escape. Moreover, social outcomes are not only products of personal will and decisions, but also of an unfair distribution of opportunities across society. This is referred to as inequality of opportunity. Specifically, unequal opportunities determined by circumstances at birth that are beyond control of the individual - ethnicity, gender, place of birth, family background - have an impact on an individual's achievements in life and thereby, significantly compromise social mobility. These circumstances have great implications for access to basic resources that allow an individual the freedom to choose one's own path in life. It, therefore, becomes clear that to address inequality and create a more just foundation to our society, we need to focus on those levers that will guarantee more equal opportunities and level out the playing field for everyone.
Motivated to create practical tools for the private sector to address this issue, Calvert has built a framework that maps out the complex relationships between the underlying drivers of inequality of opportunity and the actions that companies can take to reduce inequality. This body of work will be presented in the upcoming months and has important ramifications with the current global concerns around the COVID-19 pandemic. While necessary, recent measures taken to contain the spread of the virus (i.e., stay-at-home orders, social distancing, quarantines) have already had uneven repercussions across society. Not all individuals have the same opportunity to stay safe and financially stable during the pandemic. According to a recent survey from the Bureau of Labor Statistics, only 29% of American workers are able to work from home. Companies might be taking steps to adapt to this new reality, but these initiatives are mostly actionable for the more high-skilled share of the population, those with the resources and the ability to work from home. However, the figures vary widely across occupations and industries.
School closures as a containing measure could also result in disproportionate negative effects on the economically disadvantaged and lower-skilled, who are severely challenged by having to support their children's home schooling and provide access to technology, including internet and computers. This can be highly dependent on household income, parental education and occupation. Moreover, the effect that these factors have on future access to higher education and educational attainment are likely to be magnified in an environment where home schooling is now necessary. Individuals may also not have the same opportunity to afford continued access to nutritional meals, with potential repercussions on child health and well-being, cognitive performance and household spending.
Bottom line: In economies with staggering inequality and insufficient support to disadvantaged communities, economic shocks like the one caused by the current pandemic can not only expose low-income individuals to higher health risks, but the economic effects of COVID-19 can act to further exacerbate existing inequalities. Medical science will eventually prevail and markets will recover, but now more than ever, it is clear that the risks and adversities that inequality presents should become long-term incentives for decision makers to place thriving societies and equality of opportunity at the top of their agendas.