July 24, 2020

During a Crisis, a Company’s Workforce May be the Key to Adaptive Resilience

by Tim Gaumer.

A 2013 paper submitted to the Journal of Business Ethics was entitled, “Does Sustainability Investment Provide Adaptive Resilience to Ethical Investors? Evidence from Spain.” The authors, Ortas, Moneva, Burritt and Tingey-Holyoak, asserted, “Sustainability and financial literature recognizes there are two components to resilience—inherent and adaptive. Inherent resilience relates to the way crises are dealt with as part of business as usual at a point in time … Of greater interest for this study is adaptive resilience, a dynamic concept related to the speed of recovery from a disaster to a desired state.”

Thinking about what might make a company more adaptive, intuition suggests that ability may be highly dependent on its workforce. Here, we will examine Refinitiv’s ESG scores for signs of evidence in the data. One of the components of the overall Refinitiv ESG score is the “Workforce Score.” Among other characteristics, companies with a high ESG Workforce Score tend to have more satisfied employees, more diverse workforce and leadership teams, and more flexible working arrangements. One might expect, as millions of white-collar jobs suddenly relocated from offices to homes, companies that came into the crisis with existing policies that support flexible working arrangements proved to be more resilient in subsequent months.

Normally, we’d test a hypothesis by running a backtest to look for correlations during similar events or periods in the past. However, that doesn’t do much good during an event that’s unprecedented.

Instead, let’s use the highly unscientific approach of looking at how companies with high and low Workforce Scores have performed so far this year. Of course, there are many things that influence stock price performance, but signs of operational resiliency during this crisis may be one of the things affecting stock price resilience. Here’s how Workforce Scores and year-to-date price change align across regions.

We display year-to-date percentage price change, aggregated to the Industry Group level within the Eikon Aggregates App (AGGR), alongside its ESG Workforce Score. We recently added many more ESG components to this application, including this score.

Exhibit 1: S&P 500 Top YTD Gains by GICS Industry Group

Sources: Eikon by Refinitiv, ESG data from Refinitiv

The green boxes highlight industry groups with the highest positive price changes and top ranked Workforce Scores. The results here are encouraging. In Exhibit 1, except for Automobiles & Components, the industries with the highest price appreciation also have high Workforce scores.

The opposite can be seen in Exhibit 2. Except for Telecommunication Services, the biggest losers this year, from a price perspective, all have neutral or negative Workforce Scores.

Exhibit 2: S&P 500 Top YTD Losses by GICS Industry Group

Sources: Eikon by Refinitiv, ESG data from Refinitiv

Turning to Europe, we find similar, although somewhat weaker patterns. In Exhibit 3, among the best performing industries, five of the top eight have either positive or neutral scores. Exhibit 4 shows only three of the top 10 industry price decliners have positive Workforce scores.

Exhibit 3: STOXX 600 Top Ranked Gains by GICS Industry Group

Sources: Eikon by Refinitiv, ESG data from Refinitiv

Exhibit 4: STOXX 600 Top Ranked Losses by GICS Industry Group

Sources: Eikon by Refinitiv, ESG data from Refinitiv

As an alternative to a pan Asia/Pac index, we used a universe of large- and mid-cap stocks across the Developed Asia region. This resulted in 1,132 securities. We see similar patterns here in Exhibit 5. Among the top gainers, only Retailing has a negative Workforce Score. Four Industry Groups have high scores.

Among industries with the largest price declines, Exhibit 6 shows that only the Energy sector appears among those with especially high Workforce Scores. This was also observed in the STOXX 600 European index. In contrast, four Industry Groups have low scores.

Exhibit 5: Top Developed Asia Large- and Mid-cap Price Gainers

Sources: Eikon by Refinitiv, ESG data from Refinitiv

Exhibit 6: Top Developed Asia Large- and Mid-cap Price Decliners

Sources: Eikon by Refinitiv, ESG data from Refinitiv


We don’t claim these results provide conclusive evidence that high Workforce Scores led directly to stock prices that have bounced back more strongly than those with low scores. However, it’s interesting that there does seem to be at least some relationship here in our “eyeball-correlation” study. More encouraging is that this doesn’t seem to be a regional specific occurrence; we find similar relationships across the U.S., Europe and Asia-Pacific regions. Actual market anomalies are typically global in nature.

Maybe companies with high Workforce Scores had workforces that were already more adaptive than those of their peers. Or, maybe it’s that companies with managers who create diverse teams (including those in management roles), set up flexible working arrangements to accommodate and retain talent, etc., is a proxy for better management overall. It may be that well-managed companies are those also best equipped to deal with a crisis. In either case, it appears that actions that benefit a company’s workforce may also benefit its shareholders.

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