Prof Jeffrey Pfeffer, one of the most influential management thinkers, was typically direct when I asked him what he thought the underlying problem was: “Companies and investors worry about environmental sustainability reputation but don’t care at all about human sustainability.”

In the US, IBM has laid off older staff and allegedly replaced them with cheaper workers from India. This would be a breach of its own guidelines. Investigative journalists at ProPublica and Mother Jones say that “in the past five years alone, IBM has eliminated more than 20,000 American employees aged 40 and over, about 60% of its estimated total US job cuts during those years”.

Unsurprisingly, the case has been taken up by Breitbart, the US far-right-leaning media organisation. It has highlighted how IBM sought to employ 26,000 skilled foreign workers in 2016-17 using the US H1-B specialist skills visa process “to take coveted, high-paying jobs in the tech industry”. This was set against US layoffs and IBM having more employees based in India than in the US. Breitbart also added compensation details of IBM’s CEO, Ginni Rometty.

In the UK, the Labour MP Lisa Nandy tells the story of how Serco, a provider of outsourced government services, used a village hotel in her Wigan, northwest England constituency to house asylum seekers. 

“Overnight, more than 100 young men arrived without warning. Far-right organisations mobilised, and locally people wanted to know who they were, how long they were staying, what support and security was in place and whether vicious rumours spread by fascist organisations were true.” 

Thankfully, the story ended without violence but as Nandy highlights: “Handing block contracts to Serco who buy up cheap accommodation and care only about the bottom line is a major cause of this sense of powerlessness.”

Moreover, investors, in neglecting the social impact of their core investment activity – for most, impact investing is a marginal sideshow – have contributed, one hopes inadvertently, to widening income inequality. Data produced by Prof Gabriel Zucman, show how the real incomes of the bottom US income percentiles has stagnated from 1980 to 2014, while that of the top percentiles has increased by 6% per year. Shareholder primacy has played a role in shrinking the relative rewards granted to labour.

As the Financial Times commentator Martin Wolf has explained, rising inequality – especially when combined with low growth, which means stagnant or declining real incomes for large parts of the labour force – is a significant contributor to populism, and the drive to scapegoat targeted groups.

Many myths have emerged for why investors cannot take social aspects into account. One is that it cannot be easily measured or compared. This is overstated. Health and safety, for example, is regulated in most countries and data is easy to come by – it is often in annual reports and made easy to compare by voting advisers. Indeed, in the aftermath of the BP Macondo crisis, one sell-side research firm started to analyse this information making sectoral comparisons but stopped when buy-side interest faded. 

Another myth is that social issues are not material. Professor Alex Edmans has shown that there are highly material human capital metrics related to employee wellbeing.

One of the fundamental reasons why the social dimension of ESG is ignored is that corporate and financial thinking is blinkered by MBA and CFA training, which sees people – with the exception of senior executives and talented ‘stars’ – as costs. We know what happens to costs.

If one looks at how the neo-liberal free-market system works, the conclusion is clear: when trade-offs have to be made, human well-being comes off badly. And often this includes the well-being of the executives themselves, as we see with the high rates of burnout, illness and suicide. Pfeffer’s latest book is aptly titled, Dying for a Paycheck.

Can we expect voluntary action to change this situation? The UK government has had various commissions on human capital reporting, but little has changed. Some 17 years ago, Denise, now Lady Kingsmill, launched her Accounting for People report in which she wrote: “Directors need to transform the airy cliché about people being their greatest asset into a guiding principle of business strategy.” In how many UK companies would you say this is the reality?

There are several trends that could make things much worse. Artificial intelligence could mean job losses for a wide range of employees. Greater population movement is inevitable as we fail to address climate change and security crises like Syria. These are manna from heaven for populists in societies where workers feel threatened. 

I and a few other previously lone voices have been arguing for ‘putting the ‘s’ back in ESG’ so I am truly delighted to see the responsible investment industry is finally responding. At this year’s PRI in Person event we will see an important tool to help investors think about the connections between human capital and climate change.

And there is clear progress in the EU, where leaders accept, in theory at least, that the contract between finance and society needs to be rebuilt. In the UK, the move to make trustees clearer about how retirement savings are being invested against ESG criteria is particularly welcome.

But the initiative that gives most hope is the bipartisan commission set up by the UK think tank, the Institute for Public Policy Research. This has endorsed workers on boards and a higher minimum wage. The big question is, will institutional investors actively back this agenda? Because, to quote Pfeffer again: “In today’s world, if the stock market doesn’t like it, it won’t happen, regardless of the consequences.”

In a forthcoming column, I will look at what investors can do in practice to be a bigger part of the solution. Spoiler alert – it is not rocket science and, uncomfortably for many investors, it means addressing weaknesses in internal human capital management in parallel to engaging with investee companies.  

Best advice about practical and innovative next steps will have little value without the right leadership intent. History rarely repeats itself in a mechanistic manner but trends are instructive. In the 1930s, when disruptive change was in the air, many chose to give ‘National Socialist’ thinking the benefit of the doubt. In France, some even said: “Better Hitler than Blum.” Léon Blum, who served as prime minister, was considered the wrong kind of socialist – radical (and Jewish) – even though today many aspects of his agenda would be unremarkable. 

We can choose to learn from the past. Paying good pensions is a noble purpose but much less so if investors, inadvertently or otherwise, help create a world that is not worth living in.

Raj Thamotheram is chair and founder of responsible investment think-tank Preventable Surprises