Faculty of law blogs / UNIVERSITY OF OXFORD

A COVID-19 Index Fund—The New Fearless Girl?


Anna Christie
Assistant Professor of Law, University of Edinburgh


Time to read

4 Minutes

Before the World Health Organization’s announcement that the outbreak of COVID‑19 constituted a global pandemic, 2019 witnessed a record for fund flows to socially responsible Environmental, Social and Governance (‘ESG’) index funds. To date, the primary focus of ESG engagement among big asset managers and institutional investors has been on the ‘E’ and the ‘G’ in ESG. Take, for example, State Street Global Advisors’ index fund of firms with gender diverse boards of directors. To advertise the new ESG fund, State Street commissioned a bronze statue—‘Fearless Girl’—to be installed opposite the Wall Street Charging Bull. The plaque read ‘Know the power of women in leadership. SHE makes a difference’. ‘SHE’ denotes the index fund’s ticker symbol. Similarly, the range of bespoke climate-oriented index funds available to investors has grown considerably in recent years. However, the ‘S’ in ESG—which includes firms’ treatment of workers, as well as their impact on wider society through interactions with consumers, suppliers and local communities—has garnered comparatively less interest from investors.

The COVID-19 global pandemic has brought the ‘S’ in ESG into sharper focus. Employee and consumer activism campaigns had already gained significant momentum in other contexts. For example, Amazon employees’ advocacy group ‘Amazon Employees for Climate Justice’ generated the support of thousands of Amazon employees for a shareholder proposal on climate change and employee walk-outs aimed at lobbying the firm’s CEO (Jeff Bezos) to take climate action. This seems to have galvanised a quick shift to employee COVID-19 social activism. In March 2020, after many Amazon employees tested positive for COVID-19, workers signed petitions demanding hazard pay, paid sick leave, childcare and a commitment to close contaminated facilities to stave off further infections. Indeed, workers walked off the job en masse because of unsafe labour practices and infectious outbreaks in warehouses. ‘Amazonians United’ also ramped up and succeeded in their pre-existing campaign for paid time off. In the UK, J D Wetherspoon faced considerable employee and consumer backlash after its decision to reject governmental social distancing guidelines by refusing to close its pubs, followed by its announcement that it would not pay 43,000 employees or its suppliers as a result of mandated closures. Frasers Group (more commonly known as Sports Direct) likewise refused to close locations during the UK’s lockdown and faced significant consumer criticism. At the other end of the spectrum, companies such as Unilever have been praised for safeguarding the income of workers, providing early payment to suppliers and credit to small retail consumers, donating soap, sanitiser, bleach and food to relief efforts and coordinating global educational campaigns on handwashing. Such incidents have resulted in lists of corporate COVID-19 ‘heroes and villains’ or ‘saints and sinners’ being identified and publicly praised or shamed. In the same way that consumers are beginning to boycott corporate villains, they may also actively ‘buycott’ (ie, direct their custom towards) the products and services of COVID-19 corporate heroes. 

Although the sentiments and actions of employees and consumers no doubt impact corporate reputation and profit, they are yet to be adequately reflected in the mainstream investment landscape. The message in this blog post is simple—we need a new Fearless Girl. More specifically, metrics on COVID-19 corporate responses and labour practices ought to be incorporated into ESG indices. This could take the form of creating custom COVID-19 index funds (labour and community focussed funds). Some useful data is already available for this purpose. JUST Capital has created a tracker using information found on firms’ websites, corporate press releases and reputable media sources to evaluate how America’s 100 largest public firms are responding to the COVID-19 global pandemic. The metrics used include how companies have supported workers’ health and financial security, whether they have adopted practices to minimise job loss, how they have supported communities, local suppliers and consumers and how top bosses have led by example (or not). Moreover, Truvalue Labs has launched a COVID-19 ESG monitor that uses artificial intelligence to track and analyse how corporate responses to the global COVID‑19 pandemic are reported in the news. The data reveal a rapid increase in the reporting of employee health and safety issues and corporate labour practices during the crisis. The strong public focus on these issues has also been reflected in perceptions of corporate reputation. For example, there has been an exponential increase in negative public sentiment towards the labour practices of companies such as Amazon.   

Is this suggestion viable? In a word, yes. The building blocks are already in place to engineer COVID-19 index funds, following on from the successful creation of custom index funds such as State Street’s Gender Diversity Index and the numerous climate index funds already on the market. There are also other conspicuous examples that could act as blueprints. Outwith the major asset managers, individual pension funds such as the Church of England Pension Board have even gone so far as to create their own custom ESG indices. In January 2020, it invested £600 million in a newly created passive index called the FTSE TPI Climate Transition Index. The new index was developed by the Church in collaboration with FTSE Russell (one of the main index providers, together with MCSI and S&P Dow Jones) and the Transition Pathways Initiative (a public database launched by the Church’s investment wing that assesses the carbon performance of firms). Another novel precedent for the viability of the idea of COVID‑19 index funds can be gleaned from ValueAct Capital’s 2018 launch of the ValueAct Spring Master Fund, a new socially conscious investment fund. In 2019, the ValueAct Spring Master Fund formed a strategic partnership with Irrational Capital, a fund launched in 2017 by Duke University’s Dan Ariely (Professor of Psychology and Behavioural Economics). Irrational Capital develops investment strategies based on the empirically tested hypothesis that corporate culture is linked to corporate performance. In essence, Ariely utilised academic research and data on labour practices to create a ‘Clear Motivation Index’ which demonstrates that high levels of employee motivation and engagement are positively reflected in corporate value and stock market performance.

The benefits of COVID-19 index funds are straightforward. In the immediate future, they would allow investors to pinpoint and reward firms that have demonstrated a commitment to their social obligations during this crisis. But, perhaps more importantly, investing in labour and community focussed indices in the long-term could put institutional investors in a better position to honour their stewardship obligations. For example, in the UK the scope of the 2020 Stewardship Code has been broadened to state that investor stewardship should lead to ‘sustainable benefits for the economy, the environment and society’. The new Code also includes a principle that asset managers and asset owners must consider ‘material environmental, social and governance issues, and climate change’. Given that signatories are obliged to disclose how they have prioritised areas for investment that reflect ESG themes, investor engagement with COVID‑19 index funds could be a promising mechanism through which increased—and meaningful—stewardship could be achieved.

Anna Christie is a PhD Candidate in Law at Trinity College, Cambridge, and a Senior Member at Newnham College, Cambridge.


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