hongkongen
SI Opener: How Covid-19 is worsening inequality

SI Opener: How Covid-19 is worsening inequality

23-09-2021 | SI Opener
The Covid-19 pandemic has reversed gains in global poverty reduction and has had a profound impact on multiple facets of inequality. Observations from the labor market suggest that lower-skilled employees, youth and women have been hit much harder than the highly educated.
  • Masja Zandbergen - Albers
    Masja
    Zandbergen - Albers
    Head of sustainability Integration
  • Max Schieler
    Max
    Schieler
    Senior Country Risk Specialist at RobecoSAM

Speed read

  • Widespread rise in income and wealth disparities within countries
  • Increasing inequality could exacerbate political instability and lower growth
  • Widening income disparity also has implications for investors
This asymmetric impact on employment, earnings and wealth leads us to expect a further rise in inequality during this pandemic, thus adding to the socioeconomic and political concerns that prevailed even before 2020. At Robeco we are well aware that the uneven distribution of resources has serious consequences for societies and economies. That is why we have always treated income inequality as a key component of our Country Sustainability Ranking and of our engagement program.

The gap between rich and poor is now at its highest in 30 years

The pandemic has exposed and aggravated existing inequalities in various segments of society, as well as across sectors and regions. While official data on income inequality is published with a lag, observations from the labor market suggest that the impact of Covid-19 has been highly unequal across different groups of workers. Lower-skilled employees, youth and women have been hit much harder than the highly educated. This asymmetric impact on employment and earnings leads one to expect that inequality is set to rise further.

This development had already been evident for quite some time before Covid-19 in most advanced and larger emerging market economies. Indeed, in the majority of OECD countries, the gap between rich and poor is now at its highest level in 30 years. The richest 10% of the population earns 8.6 times more than the poorest 10%, compared with a ratio of 7:1 in the 1980s.1 The adverse impact of the pandemic will also reverse – at least temporarily – a positive trend observed in many emerging market and low-income developing countries over the past three decades, where within-country income inequality had been steadily declining, albeit from high levels.2

Climate investing: from urgency to solutions
Climate investing: from urgency to solutions
Read more

Wealth disparities are even more extreme

Some data indicate that the repercussions of Covid-19 have led to a widespread rise in wealth inequality in 2020 both within and between countries. What’s more, inequality in wealth is even more extreme than in income. According to Credit Suisse’s Global Wealth Report 2021, the wealth share of the top 10% increased by 0.9 percentage points in the past year and the share of the top 1% by 1.1 percentage points.3 With one single exception – the share of the top 1% in 2014 – last year’s rise in inequality was considerably greater than in any year in this century. The number of ultra-high-net-worth-individuals increased by 24%, while the number of dollar millionaires expanded by 5.2 million to 56.1 million, equivalent to roughly 1% of the world’s adults. The same report estimates that the top 10% of adults owned 82% of global wealth, with the top 1% alone owning almost half (45%).

A further widening of the wealth gap in 2020 could also be observed on a regional basis. Europe and North America accounted for the bulk of the wealth gains last year, whereas India and Latin America were among the losers.

Rising inequality has serious implications for society and the economy

The impact of inequality on growth, politics and society has become the subject of increasingly heated debate in recent years. Sure, inequality is an inherent part of a market-based economic system, resulting from differences in effort, individual preferences, luck, opportunities or talent. And an increase in inequality can be a catalyst for growth by fostering incentives to invest in one’s own human capital, to promote savings and investments, and to take risks. On the other hand, there is a growing consensus that excessive inequality, left unmitigated, poses the threat of disruption to the economy, to our social fabric and to political stability.

There is a growing consensus that excessive inequality, left unmitigated, poses the threat of disruption to the economy, to our social fabric and to political stability

The Gini coefficient is often used as a measure of economic inequality: a low coefficient means low income inequality. According to an OECD analysis, a 1 Gini point reduction in inequality would translate into an increase in cumulative growth of 0.8 percentage points in the following 5 years.4 A more recent World Bank study also shows that a 1% annual decline in each country’s Gini index would have a bigger impact on global poverty than if each country were to experience annual growth that is 1 percentage point higher than expected.5

Next to this, economic inequality also has an adverse impact on political stability. It can lead to social unrest, undermines democratic institutions, breeds populism, and contributes to protectionism, all of which is observable in many countries in recent years.

Investors are taking note of the risks of inequality

The above discussion implies that extreme and rising inequality will ultimately also impair financial markets and investments. A PRI study hints at a potentially negative impact on long-term investment performance, changes in the risk and opportunity patterns of the investment universe and instability in the financial system.6

In the sovereign bond space, for example, there tends to be a correlation between countries with greater inequality, lower political stability and higher country risk premiums. In view of these potentially adverse implications for the financial performance of their assets, investors are thus well advised to integrate income inequality considerations into their decision making.

Income inequality has always been an important ESG element in our proprietary Country Sustainability Ranking model. This model integrates the ESG features that are most likely to have a material impact on the long-term performance of government bonds. And, in our emerging market equities strategies, the country ranking is also used as one of the elements to determine the country risk premium.

Furthermore, reducing inequality is key to achieving the Sustainable Development Goals (SDGs), with SDG 10 aimed at reducing inequalities within and among countries. Hence, also in this regard, sustainable investing should seek to promote both sustainability and financial performance, to align the interests of investors with societal preferences in the long run.

Engagement on labor rights in a post-Covid world

Robeco has for many years engaged on labor rights and living wage programs. Our engagement program on this critical topic was expanded during the pandemic. We have begun talks with eight companies in the retail and hospitality sectors and the wider ‘gig economy’ in Europe, North America and Asia.7 The gig economy refers to that portion of the labor market where workers do not have fixed-term contracts guaranteeing certain rights, such as paid holidays or healthcare; it has grown dramatically during the pandemic. Our priorities will be to promote decent work and fundamental workers’ rights, such as social dialogue, wages and benefits, and occupational health and safety. We will also target strong human capital management strategies, including diversity and inclusion, human capital development and employee engagement, all of which are aimed at reducing inequality in multiple facets of society and the economy.

1 OECD, Income Distribution Database, July 2021 & “Focus on Inequality & Growth”, December 2014
2 IMF, Fiscal Monitor, April 2021
3 Credit Suisse Research Institute, June 2021. “Global Wealth Report 2021”
4 Cingano, F., 2014. “Trends in Income Inequality and its Impact on Economic Growth”, OECD Social, Employment and Migration WP, No. 163
5 Lakner, C. et al., June 2020. “How Much Does Reducing Inequality Matter for Global Poverty? World Bank Global Poverty Monitoring Technical Note 13
6 PRI, 2018. “Why And How Investors Can Respond To Income Inequality”
7Engaging to improve labor practices in the post-Covid world
SI Opener
SI Opener
Seeing is believing.
Read all articles

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Logo

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree