A positive spin on the current cost-of-living crisis may seem counter-intuitive given the headwinds that persistent inflation, rising rates, fragile labour markets and lower consumer spending have had on many UK companies and the returns they can generate for investors.
However, the current economic picture raises different, equally important, questions – and opportunities – for investors looking for companies with a positive social impact.
Reducing inequality
A key theme in our portfolio is reducing inequality. To date, for the most part, this has entailed identifying and encouraging companies making clear commitments to improve renumeration for less well-paid employees and increase board level representation from women and ethnic minorities.
Alongside executive pay, these issues have been some of the most prominent areas of focus within a whole host of recent high-profile shareholder resolutions.
The investor focus on these issues is essential and must continue. However, as the UK's economic outlook has soured, it is difficult, and even irresponsible, for investors to ignore the immense pressure that the cost-of-living crisis is placing on households across the country.
Reducing financial inequality within society more broadly is one area that investors have neglected to consider as much as they should have, but where they can have a positive impact.
This is not to say that the responsibility for driving change should lie predominantly with investors. At a macro level, the policies of central banks and governments, as well as an abatement of geopolitical tensions, will have the greatest impact in boosting growth, taming inflation, creating economic opportunities and alleviating financial pressure on households.
Nonetheless, at least to some extent, any fund that considers itself socially responsible should make efforts to allocate capital to ease one of the major social crises of our time. Investors certainly have a role to play. And the investment case is strong.
Absorbing business models
We have identified several companies whose business models allow them to forego passing on cost increases to consumers and can therefore keep their prices at affordable levels. Arguments in favour of socially responsible investment aside, there is a compelling case for these companies purely from an investment perspective.
As consumers tighten their purse strings, companies who offer competitive prices may not see demand for their products and services fall by nearly as much as their increasingly expensive peers. They may be more likely to provide investors with resilient returns at a time of elevated inflation.
One example of this in our portfolio is Telecom Plus. As a multiservice provider, Telecom Plus can offer competitively priced deals on energy bills by bundling them together with its WiFi and home insurance propositions. Its customer service is also highly rated, evidencing the strong level of consumer support it provides.
With utility bills at historic highs, its customer base has accordingly expanded. In the six months to 30 September, for example, its annualised customer growth rate stood at approximately 24%, and its share price has also risen significantly over the past 12 months.
It therefore provides an excellent case study of how offering an affordable service can attract customers and investors alike, even when pressure is on to increase margins.
MoneySuperMarket.com is an altogether different type of company which has become particularly attractive to us over the past year because it literally exists to save its customers money. As cutting costs has become a priority for consumers, traffic to the website has surged, and its share price has accordingly received a significant bounce over the past 12 months.
What makes companies such as Money Supermarket particularly interesting, however, is the broader impact they have on competition across the market.
In providing consumers with insight into prices and value for money, companies that charge lower prices are naturally rewarded by consumers and their revenues increase as a result. This creates an incentive for companies to charge customers at affordable rates, leading to lower prices across sectors, in a 'race to the bottom'. The benefit for consumers is therefore, in a sense, compounded.
The broader economic picture
By investing in companies that help people during the cost-of-living crisis, investors not only put themselves in line for stable returns but also directly reward firms who play a role in supporting consumers. This creates a broader incentive for others to do the same.
As and when the economic picture changes, the argument remains the same. While investors are just starting to entertain hopes of an improving global economic backdrop and cooling inflation, those companies that have looked after customers during the hard times should experience loyalty during the good times, which further strengthens their profitability and investment case.
Despite all this, investors often underestimate the opportunities these companies offer. As the cost-of-living crisis continues to bite, it’s time to wake up to their financial and social potential.
Jon Hudson is the fund manager of Premier Miton Responsible UK Equity. The views expressed above should not be taken as investment advice.