Let’s talk about the ‘S’ in ESG

With 2022 set to see significant ESG (Environmental Social Governance) investment across industries, ESG maturity is entering a more sophisticated stage. Numerous short and long term social factors are imperative to a company’s sustainability performance. From labour strikes, customer boycotts to geopolitical risks or health & safety issues in the supply chain. As long as you have employees, serve customers and operate in a regulated environment – social considerations will impact every business across all sectors.

This post will define what is meant by social performance, simplify the practicalities of integrating the ‘S’ in ESG including how to select social metrics, measuring social performance and the reasons measuring and advancing social performance is critical for business performance.

What is the ‘S’ in ESG?

The S in ESG represents the social performance of a company. It drives transparency and due diligence practises to support ethical business operations and minimise the costs and risks material societal factors may pose for an organisation. As ESG remains in the spotlight, so too does the scrutiny of social performance in companies across industries.

Sustainable development requires prioritisation of social, environmental and governance factors material to a corporation. There is a reason that the United Nations’ Sustainable Development Goals focuses on social issues such as Poverty, Good Health and Wellbeing and Reduced Inequalities alongside environmental factors such as Climate Action and Responsible Consumption & Production. Climate change issues are inextricably linked to wider social factors.

How to identify performance metrics for material sustainability issues

Social performance measurement requires assessment of diverse issues, scale, contexts and agents. The process can be demanding but the outcome provides management with a clearer picture of risks and opportunities across the social dimensions relating to your organisation. Knowing how to choose the right social indicators to measure requires assessment of the nature of your operations, issues your stakeholders find pertinent and an assessment of resources and capabilities. When measuring social performance, focus on data that enables better investment decisions, minimises hindering future risks & identifies opportunities. There are a plethora of widely used recommended sustainability frameworks offering guidance in this area – fondly referred to as the alphabet soup of Environmental Social Governance reporting. Not sure where to start? Have a look at the Sustainability Accounting Standards Board’s (SASB) Materiality Map, an interactive tool which compares social impact and other ESG disclosure topics across industries and sectors.

Social Metrics – How to quantify the ‘unquantifiable’

Unfortunately, there still isn’t a standardised reporting for social performance disclosure which means organisations are using a cocktail of factors for social issues. Here are a few recommendations for navigating the social performance metrics landscape in relativity to your industry or sector.

Identify the most material social indicators for your company then measure and extract more data to assess your end-to-end social performance. A combination approach of data-driven techniques (e.g. automated data collection, data analysis and data visualisation) and qualitative analysis (e.g. extract stories, assess wellbeing and pay attention to emerging consumer trends) is recommended for due diligence and a comprehensive integration process. Ensure you have robust and rigorous social performance data practises by selecting social metrics topics relevant to your industry.

Examples of social performance topics include:

  • Employee Recruitment, Inclusion and Performance
  • Data Security
  • Product Safety
  • Labour Conditions in the Supply Chain
  • Employee Diversity & Inclusion
  • Business Ethics (whistleblowing, malpractice, fraud etc)

Having frameworks as sector-specific communication tools

Considering the range of contexts and outcomes pursued by companies, selecting the right standardised metric will depend on who the disclosure will serve.  Impact Reporting and Investment Standards (IRIS) and Global Impact Investing Rating System (GIIRS Rating) are widely used by investors and funders to compare social impact across companies and industries and are useful for companies in the private sector. IRIS’s widely accepted social metrics support transparency, credibility and accountability through their measurement practises; they aggregate data from organisations to help industries identify benchmarks. Similarly, GIIRS’s impact rating tool integrates the same rigor of financial performance to social impact assessments. However, if you’re communicating to a wider, global audience – as a non-profit or social enterprise, for instance – then the United Nations Sustainable Development Goals provides a blueprint for social impact practises through well-defined targets and indicators.

Why measure at all?

Post Covid, investors interest in human capital has skyrocketed. Social issues are material to financial performance of a company. To be proactive again risk and to achieve sustained success, it is important to integrate societal performance. Achieve resilience and unique business opportunities through due diligence and avoid costly risks and errors.

Let’s take a look at a case study of costly, poor social performance:

Online fashion retailer Boohoo market value dropped by $2 billion in August 2020 when an undercover investigation revealed that staff were paid less than the minimum wage and did not wear protective masks during the height of the COVID-19 spread.

If we look at other countries including the UK, Australia and California, these all have mandatory reporting under modern slavery laws for companies of a certain size to address modern slavery and human rights risks in their supply chains. This requirement is expected to spread to more countries and counties.

What can be done now?

Equity investors interests are aligned with companies integrating social metrics in wider Environmental Social Governance disclosure practises. Companies who do not understand their social risks are exposing their company to future financial, legal and reputational risks. Integrating holistic and robust social impact mechanisms to identify, measure and track performance can enhance innovative capability and introduce critical factors into decision making processes.

We can help you explore the best enterprise sustainability software in minutes, or you can get in touch with our team to find out more on how we can support your organisation’s reporting.

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