From the classroom to the markets

Education is a fast growing global market - and it should be a key opportunity for socially-responsible investors. Giles Chitty of Holden Meehan highlights the key areas of interest.

Education, education, education... It’s seriously big business. The global market for educational products and services is a cool $US2 trillion - 5% of global GDP, and a growing proportion of that is covered by books and information technology. School enrolment is increasing, standards are being raised and ‘e-learning’ is burgeoning. This is a rapidly growing market.

For the socially-responsible investor, of course, education holds obvious appeal. It’s socially desirable, clearly, and hardly a threat to the global environment (indeed, it should be quite the opposite.) And delivery of basic education to one billion children in the third world would be a major contributor to sustainable development. For the SRI industry, then, this is a field of huge opportunity.

Investment in companies in this sector can cover education providers themselves, as well as publishers of educational materials such as books, software and learning programmes. Despite this, it’s rare for a major stock market company to have education as its main business. As the leading supplier of information and communications technology resources to UK education, RM plc is one such, but for many major players in this field, education is only a part of their work. These include Reed International, specialising in the business, scientific and medical fields; Pearson, for whom education makes up half its business; and Bloomsbury, which developed the Encarta World English Dictionary.

Beyond direct investment, then, what other issues around education should be of concern to the socially-minded investor? Well, some areas of major global public interest are involved. I’ve already mentioned delivering education to the world’s poor: if this is to be made attractive to education companies, it will need committed government support - not always politically feasible, given the constant pressure for tax cuts.

Then there are the social responsibility aspects of the supply chain of educational goods and services. Are sponsors of educational input to schools having an undue influence in selecting material content - or linking it to purchases of their products? Are materials geared only to the narrow goal of meeting educational testing criteria? These are all questions for which the SRI industry needs to come up with creative responses. But education, of course, extends beyond the classroom: so what about an SRI approach on life-long learning? What about sustainability training for corporate management and employees?

This is far from being a rhetorical question: increasingly, the importance of high-value human capital is recognised as the ‘edge for excellence’ in industry. It has been said that 70% of the capital value of the FTSE-100 index is non-material assets: brand value, corporate reputation, stakeholder networks - all of which essentially depend on high quality human capital. Without this, companies can easily slip into the sort of erosion of trust which has triggered some of the recent turmoil on the stock markets. By contrast, leading companies show a resilience to rapid change in business conditions or fortunes through developing responsive and resilient ‘human capital’. And much of that has to do with education - in team spirit, communications skills and flexible group working.

Education also plays a key role in ensuring the success of moves towards ‘flatter’ organisations and the development of corporate goals and practices, which collectively express the values and aspirations not only of employees, but stakeholders, too.

These ‘softer’ factors are, of course, the most difficult to build into a formulaic approach to investment management. But analysing their relation to share prices is the forte of investment management teams which take a holistic view of corporate enterprise, and its relationship to the environment in which it operates - in other words, an SRI approach.

One thing seems clear: companies and investors who recognise the value of education, and the opportunities it offers, will surely survive and out-perform their rivals.

Giles Chitty is a consultant at Holden Meehan

23 September 2002

Giles Chitty