Written by: RBC Wealth Management
Increasing attention to employee needs, as well as investors’ understanding of how psychologically healthy employees contribute to the bottom line, health and well-being funds have grown in popularity.
The past two years of the COVID-19 pandemic have had a significant negative impact on Americans' mental health. During the pandemic, approximately four in 10 adults in the United States have consistently reported symptoms of anxiety or depressive disorder, an increase from one in 10 adults who reported those symptoms during 2019, according to Kaiser Family Foundation. Specifically, many have reported issues such as difficulty sleeping or eating, an increase in alcohol consumption or substance use, and worsening chronic conditions—all due to pandemic stress.
In response, growing numbers of employers have looked for new ways to support their workforce, as studies have shown that happier and healthier employees produce better business results. According to research published in the Journal of Occupational and Environmental Medicine, for example, companies with strong employee health and well-being programs significantly outperform the S&P 500.
And just as health and well-being has become a greater focus for many employers, it has also grown in importance for many environmental, social and governance (ESG) investors, says Kent McClanahan, vice president of Responsible Investing at RBC Wealth Management–U.S.
"ESG investors have always considered the social impact of the companies in which they invest, but until 2020, health and well-being had not been as large a part of the 'S' of ESG," McClanahan says. "That's started to change, and especially over the last year, we've seen mental health become a focus area for ESG investing."
As a result of companies' increasing attention to employee needs, as well as investors' understanding of how psychologically healthy employees contribute to the bottom line, health and well-being funds have grown in popularity. More than $20 billion is currently invested in equity funds focused on a theme of health and well-being, according to RBC research, and net flows into these funds have risen consistently since March 2020. Additionally, a number of new funds focused on health and well-being launched in 2021, indicating investors' increasing interest in this theme.
How today’s companies boost employee health and well-being
Employee health and well-being has always been a priority for many HR departments, but the pandemic pushed that focus to the forefront across organizations. “What happened in March 2020 was the health and well-being of our employees became the number one focus of every leader and the focal point of every meeting and discussion," says Shareen Luze, head of culture and field experience at RBC Wealth Management–U.S.
Prior to the pandemic, for example, RBC Wealth Management employees in the U.S. worked in spacious offices, chatted with colleagues in the hallways, and met with their teams and clients in person. As soon as the pandemic hit, employees who were able started working from home—often in isolation, with longer hours, virtual meetings, a loss of boundaries between work and personal time, greater personal responsibilities, and stressful uncertainty regarding work, safety and the virus, Luze says.
“Our employees have complex, busy and often challenging lives," she says. “As an employer, we have an obligation to provide support and resources to our employees."
In an effort to provide that support, RBC Wealth Management added 20 days of paid child care leave (in addition to regular forms of paid leave), pay continuation for employees who were unable to work from home or work full-time, and a commitment to no staff reductions in 2020. The company also offered employees a one-year subscription to Headspace (a meditation app), among other wellness benefits.
Like RBC Wealth Management, many other organizations ramped up health and wellness benefits for employees, and Luze expects the commitment to employee wellness to remain long after the pandemic. In the case of RBC Wealth Management, the firm created a C-suite-level role focusing on employee experience, including health and well-being, and continues to add online wellness resources for employees, including renewing the Headspace subscription.
How health and well-being funds align with ESG values
ESG investors can consider the health and well-being impacts of any potential investment by looking into whether the company they're evaluating prioritizes the health and wellness of its employees. Before the pandemic, companies may not have disclosed such an impact in a standard or transparent way. But with health and well-being becoming a larger focus for employers and investors alike, companies have begun reporting statistics that will make evaluation easier, McClanahan notes.
Another way to prioritize health and well-being through investing is to invest in the health-related companies that are moving the wellness of our society forward. As an example, McClanahan points to companies in the health care sector that find new ways to improve health outcomes while also cutting costs.
“Hospitals are losing money during the pandemic because they're unable to do regular well-check visits and regularly scheduled surgeries, but telehealth has boomed," McClanahan says. “New, wearable technologies allow patients to do things like monitor blood oxygen levels with their smartphones."
Additionally, new approaches to drug delivery, such as the MRNA-vaccine process and the development of more effective drugs so people don't need to take as much medicine, are lowering costs and improving outcomes, McClanahan adds.
And while all companies have some ESG risk, the social impacts of traditional health care companies—such as drug recalls, damaging medications and failed trials—have developed into increasingly important issues to ESG investors.
“Health care has become an area of increased focus for ESG investors, and the pandemic has brought a new awareness to things like product safety, product quality, governance overseeing product development, and fairness to governments and groups who need the products," McClanahan says.
How to invest in health and well-being funds
Investors who believe in the importance of health and well-being, for both social and financial outcomes, can incorporate that mindset into their portfolios. You can do this by investing specifically in ESG funds focused on health and well-being, or by looking for funds that include highly ranked health-related companies.
“Make sure it's not just a bucket of health-care-related companies that may not be forward thinking," McClanahan says. “For example, investing in a telehealth company is more forward thinking than investing in traditional hospitals. Follow the trends, rather than just assuming that all health care companies will do well because of the pandemic."