'Humans are the most important asset for any company:' Aniket Shah

Jefferies Global Head of ESG and Sustainability Research Aniket Shah joins Yahoo Finance to discuss the investment in human capital, the importance of keeping employees engaged in the work, and what the work from home experiment can tell us about employees.

Video transcript

JULIE HYMAN: This is Yahoo Finance Live. I'm Julie Hyman. We talk a lot about ESG on this show because it has gotten such increasing attention in the investing community, but a little bit of a different twist on it, perhaps, or the next phase, perhaps. Aniket Shah is joining us now, Jefferies Global Head of ESG and Sustainability Research.

Good morning. You guys recently held a conference when you talked about the human capital part of ESG. I don't know if that falls under the S portion or it's sort of overarching, if you will, in terms of a framework of how to think about ESG. Talk us through how to think about human capital.

ANIKET SHAH: Absolutely. Thank you so much for having me. Look, we all know that humans are the most important part of any company. We hear that from CEOs all the time. We hear it from chairmen and chairwomen of boards all the time. Unfortunately, investors don't think about that human element of the companies that they invest into.

And our efforts here at Jefferies are trying to expand the scope of conversation for ESG investors to more clearly understand the human capital of companies they're investing in, the corporate culture of the companies they're investing in, because we know these things matter, but we know investors aren't currently paying attention to it. So our work is trying to bridge that gap.

BRIAN SOZZI: How could a retail investor or someone just getting involved with the market or a little less sophisticated than an institutional investor, how could they go about finding if a company is doing things right on the ESG front?

ANIKET SHAH: Well, it's a difficult question right now because companies aren't disclosing enough information about their employees. We know, for example, that basically, all mid-sized companies and up have to put together an EEO-1 disclosure on their employees. But very few companies actually disclose that. So it is a difficult question for the retail investor or the institutional investor, frankly, to understand.

But where we start with, very simply, is, number one, understands that humans are the most important asset any company has. Number two is if you are a retail investor, start talking to people who work at a company. Start talking to people who are buying the goods of a company. Get a sense of how people who are engaging with the business think about that company, what it stands for, its culture, how it treats its employees, how it treats its stakeholders, and you can get a lot of interesting information through that sort of anthropological way of doing research.

And one of the takeaways of our note is that investors need to become anthropologists. And we think that that is the next phase, frankly, of ESG investing for the next several years.

JULIE HYMAN: And Aniket, it occurs to me, hearing you talk about this, I mean, could investors even use tools like Glassdoor, which traditionally have been used more as recruiting, where if you're looking for a job, and you want to know what is this place like to work at. But from an investment perspective, maybe you also want to know what is the place like to work at. And that could be one way to find out.

ANIKET SHAH: Absolutely, we are huge fans of Glassdoor as one more quantitative way to understand a company's culture. It's imperfect, like all such tools are. But it gives you a sense of how a group of people, oftentimes self-selected, think about working at a company. You know, it's very interesting. We are living in a world right now where, according to recent Gallup polls, 50% of employees feel disengaged at work-- 50%. If any other asset of a company was operating at 50% of its full capacity, investors would be throwing their hands up in the air, saying, what is happening? What is going on?

We know that between 40% and 80%, depending on polls, of workers today are actually thinking of leaving their job. You know, you can't actually run a successful business if your most important asset is not happy, is not engaged. And one of the things we're trying to do is open up that conversation for more thoughtful thinking from investors.

JULIE HYMAN: How much is that a factor of not being in person right now? I mean, we know that more employees are back in the office now than have been since the beginning of the pandemic. The latest jobs report showed us that. But, you know, is there enough of a hybrid function there that that is part of the issue here?

ANIKET SHAH: It's certainly contributing to it. You know, we still don't know, really, the end result of this great experiment that we are in, which is hybrid working versus fully remote working versus full working in the office. And right now, we think that investors should be understanding this experiment and seeing what is working for different companies and what signs are there that companies are taking this question seriously.

On the one hand, our own research and our discussion with experts indicate that employees want flexibility. They want to have a little bit of time, either at home to work from home or be able to control their own schedule a little bit. At the same time, you're seeing a lot of significant polls and interviews coming through that young people say that their careers are sort of on hold if they're not in the office with their colleagues.

So I think, to answer your question, we're still in the early days. But what institutional investors should surely be looking at is, do companies that they invest in have a plan? Are they being thoughtful about this great experiment we're in about how employees work? What are the signs that they are seeing and using as indicators of what's working and what isn't? And how adaptable is the business? You know, this is one of the things our research is very clear on. That adaptability of a business is critical. It's a critical cultural element to success. And that includes with how a company treats its employees.

BRIAN SOZZI: I just got a good piece of research from your team in my inbox, talking about your dive into racial equity audits. And the research notes that employee engagement, diversity, and inclusion are deemed financially material to 5 of 11 sectors, according to SASB. My question is, what companies are doing racial equity audits right now? And who is doing it the best?

ANIKET SHAH: Well, there are a lot of companies right now that are figuring out this space. I don't want to comment on which companies are best or worse on this. But what we know is that the policymakers are thinking about having some level of mandatory racial equity audits. We know investors are now putting forward shareholder proposals for racial equity audits. And we know that some companies are sort of getting out in front of this and saying, we're just going to go and do a racial equity audit before our investors force us to. And we're seeing this from a lot of companies on Wall Street, as well as in tech out on the West Coast.

So our view about this is that if this becomes more and more a part of the discussion, a part of the disclosure framework of companies, then this is going to become more material for investors. And therefore, investors should care and should be following this. And we at Jefferies are going to spend a lot of our time going deep on these subjects and bringing our clients with us.

JULIE HYMAN: Aniket, I want to ask you finally about a sort of more traditional way of measuring employee satisfaction. And that's how much they're paid, which, obviously, is also important, in addition to all of these cultural elements. We're about to go into earnings season. And Brian and I have been talking a lot about how much costs are going up, including wage compen-- wage and compensation and how much that's going to squeeze companies' margins. Do you think about it differently because it illustrates maybe also a level of employee satisfaction?

ANIKET SHAH: It's a wonderful question. We spoke about this at our summit last weekend. Our keynote speaker Dan Ariely had some fascinating insights about this. You know, what we know from experiments and from surveys is that, yes, compensation matters, absolutely. But perhaps what matters more is fairness around compensation. It's to know that if you put in a hard day's work, you're getting paid fairly compared to other people around you. That includes from a gender pay equity perspective, from a racial pay equity perspective, and from an experience pay equity perspective.

And so, we don't, in any way, dismiss the importance of compensation as a indicator of happiness and so on. It is important. But the fairness question is perhaps even more important. This is something that we wish more companies reported on so that investors can take this as part of their analysis. But we are going to ask for more of this disclosure. And we hope other investors and banks will do the same.

JULIE HYMAN: Really interesting stuff. Thank you so much. Aniket Shaw is Jefferies Global Head of ESG and Sustainability Research. Appreciate it, Aniket.