ESG’s evolution, and the issues this presents for the ‘S’ factor

What does S cover?

The social element in ESG covers the many ways companies interact with their employees and the communities in which they operate. This typically includes issues linked to how a company treats its staff; employee safety, gender equality and living wages. At a wider country level, it can relate to factors like whether human rights are being violated and workers’ rights.

Current challenges

For some time the climate crisis, and environmental metrics, have been high on the public and political agenda. Companies in every aspect of business are implementing and improving strategies to reduce carbon footprints and emissions. Governance policies, particularly in terms of board diversity and shareholder rights also prove regular talking points. But both of these areas are certainly more quantifiable than the blurry issue of corporate responsibility within the social investment sphere.

In recent years, a global pandemic, alongside seismic economic and cultural shifts, have accelerated and amplified the very real need to address the ‘S’. 

COVID-19 has served to highlight the value companies place on workforce, community and customer. Often overlooked, coronavirus shone a light on concern for employee wellbeing and social inequality like never before. 

In the US this May (2022), a number of large companies commited to financially assisting employees seeking abortion services that looked soon to become unavailable within their state. Interestingly, once the law was passed in June, dozens of others seemingly felt obliged to follow suit.

These, among many other factors, have marked ‘social’s transition from a values-based question to a material business question.

Putting your money where your mouth is

In its infancy, ESG was a list of recommendations by the financial industry born from a report titled “Who Cares Wins”; a joint initiative of financial institutions at the invitation of the UN. As society’s cultural focus has progressed, ESG’s middle child has had to grow up fast. 

From inception, diversity was a great concern on ESG’s social agenda. Women and people of colour were underrepresented in corporate boardrooms. Though slow, many notable initiatives mean that this continues to improve. In 2017, former President Trump prohibited the entry into the U.S. of migrants from Muslim countries. JPMorgan Chase was among companies to speak out and affirm their values, with others like Nike and Goldman Sachs actively opposing the policy. Following the death of George Floyd in 2020 and the rise of the Black Lives Matter movement, the top 50 companies in America pledged $50 billion to support racial justice. After the invasion of Ukraine, more than 1,000 companies curtailed or severed their dealings with Russia to demonstrate opposition to Putin’s oppressive regime. 

Although largely unregulated, more companies are acknowledging their social impact responsibilities, with pressure mounting on this area of ESG to catch up to its environmental counterpart.

Moving forward

As consumers increasingly make choices based on their values, any substandard practices in supply chains pose reputational risk. Moreover, a strong social, and wider ESG proposition, creates value and is indicative of good business function.

Don’t fall behind your more ESG-focused competitors. SI Engage will help you assess, track and improve performance and impact. Get in touch to find out more.

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