The 'S' in ESG and Why it's Truly Critical for Corporates
By: Supriya Dixit, Head- Sustainability Committee, SG Analytics
Supriya Dixit is the Head of Marketing and the Chair the Sustainability Committee at SG Analytics, leading the firm's sustainability charter encompassing environmental, social and governance goals, imperatives and initiatives. She is extremely passionate about DEI, mental health awareness, ESG and CSR, and collaborates with diverse stakeholders across the organization to plan and execute strategic initiatives in-line with the company's core philosophy and vision.
Significant shifts in socioeconomic implications have exacerbated inequalities globally. With the businesslandscape evolving dramatically, companies are shifting their focus on creating a positive social impact. Businesses are creating and integrating positive economic and social impact through strategic corporate social responsibility (CSR), as well as by enforcing solid reporting methods to further strengthen their contribution to the "S" in ESG.
S in ESG - The Societal Impact and Purpose in the Framework
Today the convergence of climate change and inequality is reshaping the business landscape globally, and the social contributions of enterprises are becoming part of the expectations and solutions for a smooth transition. However, myths concerning the lack of measurement of social impact still prevail.
Persistent social inequalities and a dire need for a fair evolution toward a more sustainable economy are strengthening the argument for measuring and reporting social impacts as part of any ESG (Environmental, Social &Governance) initiative. And the growing focus on the 'S' of the ESG signifies value creation for transforming lives.
While ESG (Environmental, Social, and Governance) issues have increasingly dominated the executive agenda for years, not every element has received equal attention. This most often overlooked element, "S," has now been put into sharp focus.
Addressing The Elephant in the Room: The Many Aspects of "S"
The social pillar "S" of ESG is wide-ranging. It traverses everything - from diversity and inclusion to human rights, security, and ethics. However, despite this broad scope, the social pillar across organizations has yet to receive due consideration.
While some enterprises are already integrating social subjects and sustainability factors in their strategic agenda, others are just embarking on their journey. Several social factors are likely to affect a company's financial performance, ranging from short- to long-term challenges:
- How an organization'sworkforce requirements and composition present problems in the future?
- What risks follow with the safety implications of a product or the politics?
- What future demographic or changes in consumer preferences could shrink the market for products or services?
Since social reporting is gaining prominence, it is becoming critical for public and private organizations to catch up. Businesses that fail to publicly report their sustainability ratings or give due cognizanceto vital social issues are likely to be excluded from the sustainability value chain.
Unpacking the Key Measurement of "S" in ESG
The well-being of people in an organization is central to its social performance. Investors and business leadersare exploring ways to capture social indicators as part of their organization's ESG strategies. To estimate an organization's social impact, an enterprise must define its key stakeholders, inclusive of their employees, consumers, as well as local communities.
Representation, pay, and overall working conditions are equally significant. To measure the social impact, the well-being indicators organizations can employ, as per the Organization for Economic Co-operation and Development (OECD) standard, include:
- Employment — like hiring and promotion.
- Learning & skills — skills obtained on the job and personal development.
- Health — healthy and mental health safety in working conditions.
- Earnings — benefits, executive pay gap, and financial insecurity.
- Work/life balance — annual leave and average working hours per employee.
- Social support — manager effectiveness and trust among team members.
- Social implications — such as racial justice, economic inequality, and LGBTQ rights.
Intersectionality of S with E & G
Environmental, Social, and Governance (ESG) frameworks are established on three principles critical to introducing a more holistic approach to corporate performance. While the ESG framework evaluates how advanced an organization is with sustainability, it equally assesses the performance of countries and investments.
The social pillar "S" in ESG is imperative as it reflects the 'how and why' of an organization and its social movements significant for creating positive and lasting change on the planet. It scrutinizes all elements of business strategy and organizational architecture connected to people.
Today, businesses find themselves at a critical juncture in history as there is an accelerated need to embrace the social component of their ESG strategy and to act to crystallize corporate principles into an executable sustainable strategy. More and more companies are now focusing on the diversity, inclusion, and equity aspects of the "S." They are recognizing and raising their "S"-focused work to foster employee well-being. How corporations measure the "S" in ESG can greatly influence the way they address the well-being of their employees, communities, and other stakeholders.
- The principal question behind the social aspect of sustainable investing - "S" in ESG - is how an organization can manage its affinities with its workforce and the societies it operates in.
- Many social factors affect an organization'sfinancial performance - from short- to long-term challenges.
- Social factors in sustainable investing include the strengths and weaknesses of an enterprise when dealing with social trends, labor, and politics.
The Way Forward
Given the fluid landscape, the ESG mandate can often seem overwhelming. While early attention has been paid to the "E" and "G" in ESG as organizations implemented frameworks to reduce their carbon footprints and emissions, "S" has always been overlooked by many. However, overlaying all is an emerging recognition that ESG presents, enabling organizations to venture beyond normal cases of compliance or corporate social responsibility (CSR) and scale appropriately to address known and unknown risks. The social element of the ESG overlay is more challenging as it relates to how an organization supports its stakeholders.
With robust internal controls and a holistic approach that present ways to track the benefit of social impact, organizations can look at the social arm through a new lens. These components can be seen as a big “S” push for the true benefit of social justice