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Trust me, I'm a chief executive

15 Feb, 2021 | Return|

By Katherine Davidson, Fund Manager, Global Sustainable Growth Fund at Schroders

Public trust in government is waning, as the 2021 Edelman Barometer of Trust revealed recently.

Between January and May 2020, trust in government rose in almost all countries: people all over the world put faith in their leaders as the global pandemic took hold.

But, interestingly, this trust has subsequently  eroded, in some cases to below pre-pandemic levels. The pandemic has been more severe and long-lasting than almost anyone expected, putting extreme pressure on health systems and causing unprecedented economic damage.  

Distrust of government jeopardises recovery

Here in the UK, the government has been accused of flip-flopping and U-turns, undermining the ‘wartime mentality’ that prevailed in the spring of 2020. In the US, it seems likely that Trump would have been re-elected if not for the pandemic. Lower levels of trust are threatening the recovery as many people are wary of accepting the vaccine amid swathes of misinformation online.

While trust in government is still up slightly on aggregate, Figure 2 shows that respondents see government as the least competent and the most unethical of all institutions.

Who can we turn to?

But it’s not all bad news.

There is one institution that is considered both ethical and competent: business.

Business is now the only institution to score over 60 on the Edelmann survey, the level which is considered the threshold for public trust.

It is gratifying to us that the big improvement has been in the perception of business ethics, reflecting well on the private sector’s response to the pandemic.

People are increasingly looking to corporates to step up and lead us not just out of the coronavirus crisis, but also to address wider societal problems.

A new social contract

This is consistent with our previous work noting greater public scrutiny on companies’ treatment of their stakeholders during the pandemic, especially with regard to  employees.

We see this as the start of a new social contract between business and wider society.

We’ve seen growing evidence that investors expect companies to manage their impact on the wider environment and society, and lead on societal issues.

One relatively new phenomenon is that this trust is increasingly placed not just in the business community as a whole but on specific individuals within it. This creates challenges for executives, who are now expected to publicly comment on contentious issues in order to maintain the loyalty of their customers, staff and shareholders.

Another question reveals that 86% of respondents expect CEOs to address societal problems, including the pandemic.

For example, now that “Black Lives Matter” has moved firmly into the mainstream, the vast majority of Americans surveyed by JUST Capital expected CEOs to respond to the BLM protests. It could be in the form of statement about ending police violence, promoting peaceful protest or, at very least, elevating diversity and inclusion in the workplace.

Business can and should rise to the challenge

The business community has a responsibility to be a force for good as this pandemic rages on. And we as investors have a responsibility to encourage and incentivise this behaviour. As stewards of client capital, we need to hold executives to account, encourage transparency, and support business leaders to act in the best long-term interests of society and the environment.

We have long believed that this behaviour will ultimately be in the best interests of shareholders, thanks to what we describe as ‘corporate karma’. 2020 was a powerful proof point, as we saw stocks and funds with higher ESG rankings outperform, especially during the sharp sell-off in March. We expect this to continue as customers, talent and capital flow to companies seen to be ‘doing the right thing’.

The public has put its faith in our hands; we – literally - can’t afford to let them down.

Important information

This article is for professional clients only. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change. 

Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued in February 2021 by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority.

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