Put Your Money Where Your Heart Is: What is Building Social Capital & Why This is Important to Investors

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This is the fourth article in Put Your Money Where Your Heart Is, a series of five articles written in collaboration with Prudential that tackles the topic of Environmental, Social and Governance (ESG) and takes a closer look at responsible insurance and investment.

It’s important to build infrastructure and hardware, but the fabric that holds everything together is social capital.

Unlike physical infrastructure, social capital is harder to measure. According to a 2017 study conducted by the Institute of Policy Studies at NUS, social capital in Singapore is strengthened when there is a diversity in social networks. Mixing of people with different ethnic backgrounds, gender, levels of income and levels of education is thus one of the keys to a more cohesive society.

The study’s findings have called attention to the highly stratified nature of Singapore society. For instance, the education system divides students very finely according to academic results, which often has the unfortunate side effect of sorting children along class lines.

By working to empower people and unlock their potential through promoting diversity in representation and thought, and fostering a culture of inclusion and a sense of belonging within our organisation, social capital can be enhanced, in turn contributing to sustainable development.

When it comes to insurers, those that contribute to the building of social capital signal to investors that their money is put towards the things they care about and can benefit society in the long run, by a company that places people at the heart of their growth strategy.

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One aspect is gender equality

One issue that is receiving more attention these days is the gender divide.

In 2018, women in Singapore still faced a gender pay gap of 6% when the figure was adjusted for factors like industry, occupation, age and education. Before adjustment, the real gender pay gap was 16.3%.

Adjusting the figure to 6% ignores the fact that certain industries dominated by women, such as nursing and childcare, may command low wages as tasks perceived as “women’s work” could be devalued by society.

Businesses are starting to worry about gender equality, too. According to the World Economic Forum’s Global Gender Gap Report 2020, gender parity can significantly influence whether an economy or society will do well. In addition, as a 2015 McKinsey report found, advancing women’s equality could add $12 trillion to global growth.

Women make up slightly less than half the population in a society. Hence, letting structural factors force them to spend huge amounts of time tending to domestic tasks, could potentially impact the labour market — and even the economy. Based on data from The World Bank, about 47% of the world’s women participated in the labour force in 2019, compared to about 74% of the world’s men in the same year.

While we have come a long way from our days as a developing nation, there are still improvements that can be made in terms of gender equality.

For instance, despite policies providing for government sponsored paternity leave, the lion’s share of caregiving, whether for children or elderly parents, still falls disproportionately to women. And women in dual-income households are still 5 times more likely than men to have to manage housework and caregiving responsibilities.

Responsible investing and gender equality

So how can we, as investors, make sure we are promoting a better world? We actually have more power than you think!

We can begin by making responsible investing decisions. This could mean investing in companies (or funds that invest in such companies) that have a proven track record of promoting gender equality and diversity, and that take a serious stance on sexual harassment or discrimination.

That is where Environmental, Social and Governance (ESG) investing comes in. ESG investing involves taking into account companies’ consciousness of factors such as environmental sustainability, social issues and good governance.

Gender equality can be viewed as one key pillar, comprising the “S” in ESG, that investors can look out for if they feel strongly about social issues.

Case study: Prudential and gender equality

Prudential Singapore is one example of a firm that is leading the charge and actively working to eliminate gender inequality from the inside out.

With an aim to remove the overall gender pay gap by 2024, Prudential Singapore exceeded its 2021 target by narrowing the gap to 1.1%. This is ahead of its original 2021 target of a 5% pay gap.