LFR : Extra Financial Indicators: Workforce growth

La Financière Responsable is a specialist ESG asset manager with an award-winning approach to integrating financial and extra financial analysis. Investors and analysts are sometimes unsure as to what constitutes extra financial information, and how it should be interpreted. Drawing from its Ecosocial Footprint (Empreinte Ecosociale®) database, LFR is publishing a series of Blogs showing how selected ESG indicators are defined, what they represent and how they are interpreted. LFR is also ready to engage with interested parties on any aspect of this analysis.

Workforce Growth is one of 54 social indicators that make up the Ecosocial Footprint (Empreinte Ecosociale®) measured by La Financière Responsable. It is probably the most relevant for assessing the dynamics of corporate employment, but it is extremely complex to determine the much-discussed concept of job creation. With the large number of mergers that drive business growth, it is ultimately not possible to extract job creation from workforce growth.

LFR uses full-time equivalents at the end of the fiscal year -- selected each year, for each of the companies in the portfolio at a given date. According to INSEE, the full-time equivalent figure is the result of the division between the total number of hours worked and the average annual hours worked in full-time jobs in the economic unit, which in this case is the company. LFR obtains the figures from the company itself, which publishes them in its annual report. The five-year workforce growth rate is expressed as an annual actuarial rate.

This indicator makes it possible to assess a company for its growth dynamics and the impact that has on employment. The social practices of growth-oriented companies are a strategic asset for sustainable development. LFR pays particular attention to this, since the companies held in the LFR Euro Développement Durable Fund have experienced a very strong increase in their workforce: + 27.9% from 2010 to 2015, compared to the Eurostoxx 50 and the CAC. 40. However, we acknowledge that companies in the fund's portfolio are often smaller than those of the indices, and have a much more active employment dynamic.

Source: Ecosocial Footprint – Empreinte Ecosociale®

Workforce growth analysis can also enable a comparison of sectors and strategies of companies. In the LFR Euro Développement Durable Fund, the industry and technology sectors are clearly ahead, with an increase of + 49.7% and + 44.3% respectively between 2010 and 2015. Yet the type of strategy followed does not seem to be a differentiating factor. Indeed, the growth of the workforce between 2010 and 2015 is + 23.2% for cost leadership and + 29.3% for differentiation focus (according to Michael Porter’s classification of Generic Strategies, which describe how a company pursues competitive advantage across its chosen market scope).

All in all, the average employment growth rate of firms in a portfolio is itself a very characteristic feature of the financial management style adopted, without, of course, being an indicator of the quality of the enterprises selected.

Source: Ecosocial Footprint – Empreinte Ecosociale®