Corporate reporting on environmental, social, and governance issues can be used by a variety of stakeholders, including employees, investors, customers, etc., to assess ESG-related risks and opportunities relevant to an organization. While environmental and governance factors are often at the forefront of ESG considerations, social aspects are equally important.
Addressing the social drivers of ESG is essential to building sustainable and responsible organizations. This includes actively working to improve diversity, equity and inclusion (DEI) within the company, as well as promoting ethical behavior and social responsibility in all our operations. IT departments can play a key role in this process by ensuring technology is used ethically and responsibly, protecting sensitive data and promoting digital inclusion.
What does the “S” in ESG relate to?
ESG social factors include a company’s treatment of its employees, supply chain practices, community involvement, and overall impact on society. The social component of ESG is intertwined with the concept of corporate social responsibility (CSR), a self-regulatory model for addressing business practices that have a positive impact on society. Some components of a CSR strategy can be incorporated into ESG metrics to track and report an organization’s performance on social issues.
The social dimension of ESG also aims to redress inequities in the environment in which companies operate. Today, companies face an increasing number of social justice issues that can pose business risks, such as labor rights, gender and racial equality, child labor, and environmental impacts on people’s health. The way a company operates can have a significant impact on these issues. This refers to companies that aim to take steps towards fair pay for all employees, including those of supply chain partners, as part of their ESG efforts, or to reduce environmental harm in their local communities. It means adopting a policy.
For example, sustainability expert and author Andrew Winston points to a wide range of companies raising wages for low-wage workers, such as Walmart increasing wages for store workers. There are also economic benefits to such a move. “More sustainable social aspects of middle-class wage growth are driving economic improvement,” Winston said.
Salient social issues for today’s organizations
There are a variety of social issues that organizations can incorporate into their ESG programs. Here are some common examples:
- D.E.I.
- Fair wages, living wages, and other labor practices.
- Workplace health and safety.
- Employee experience and engagement.
- Fair treatment of customers and suppliers.
- Oversight of practices at supply chain partners.
- Responsible sourcing of supplies and materials.
- Community involvement and involvement.
- Charitable giving and funding for social programs.
- Supporting human rights and international labor standards.
Why the social component of ESG is becoming more relevant and important
The ESG movement evolved from social responsibility and sustainable investment practices, which first emerged in the 1970s and became more widespread in the 1990s and early 2000s. ESG investing has often focused primarily on understanding the climate-related risks faced by companies. However, since the start of the COVID-19 pandemic, the social factors of ESG have become more prominent.
Consumers, employees, and other stakeholders are now becoming more aware of and advocating for ESG-related social issues. Businesses are expected to play a more active role in addressing these issues and positively impacting society. ESG social factors reporting helps create a type of “social credit score” that is intended to function like a personal credit score for consumers.
A June 2021 report titled “Accelerating S in ESG — A Roadmap for Global Progress on Social Standards” published by the UK-based International Regulatory Strategy Group and consulting firm KPMG said that the pandemic It is pointed out that interest in ESG has increased due to this. Overall, and especially its social factors received significant attention. “COVID-19 has forced changes in work and lifestyle habits, highlighting and exacerbating long-standing social problems,” the report said.
Five concrete ways to address the “S” in ESG
Here are five specific areas for addressing social issues that companies can focus on as part of their ESG strategy.
- DEI initiatives. Programs and policies that promote diversity and inclusion in the workplace, such as as part of hiring practices, training, and mentorship programs, can help increase the representation and participation of different groups of people. Additionally, equity measures are designed to ensure that all employees are treated equally and given the same types of opportunities. DEI principles include recognizing that people face different challenges and not taking common ways of doing or thinking for granted. His effective DEI efforts result in more diverse voices and a workforce that better reflects a company’s customer base.
- Employee engagement and happiness. As part of their human capital management process, companies can prioritize the health and well-being of their employees through initiatives such as mental health support, flexible working arrangements, and fair compensation. These efforts are key to preventing widespread employee turnover and increasing retention rates. It also helps attract new employees. Ensuring that working conditions are safe and healthy is also an important part of an ESG program.
- Contributing to local communities. Companies can engage with the communities in which they operate through business partnerships, volunteering, mentorship, and philanthropy. This benefits both the community and the business. For example, IT departments can offer internships with local high schools and community colleges to fill open IT positions while providing a path to advancement. Having a positive impact on your community can also improve your company’s standing and reduce potential business risks.
- Ethical behavior and social responsibility. As Ann Skeete, Senior Director of Leadership Ethics at Santa Clara University’s Markkula Center for Applied Ethics, wrote in February 2022, “Businesses that support human well-being, that businesses influence society, and that society influences It is related to the practice of “guiding companies to ways to receive the best results.” Ethical behavior and social responsibility can be promoted through codes of conduct, transparency and accountability. For example, proactively communicating how an organization complies with internal codes of conduct can go a long way in avoiding investor votes against board members or objections to executive compensation.
- Company purpose and culture. Identify a company purpose that incorporates ESG goals, including social goals, and build your company culture around it. Harvard Business School professor George Serafeim wrote in a 2020 paper that a purpose-driven culture is essential to gaining internal support for ESG initiatives. harvard business review article. Purpose, he says, is not a slogan on a wall in a headquarters office, a mission statement online, or a speech by a CEO at a town hall meeting. “Do you recognize it?”
The role of IT in managing the social aspects of ESG
Data is at the heart of ESG reporting. As custodians and stewards of corporate data, IT leaders must ensure the quality and availability of their organization’s ESG data. In the context of the social aspects of ESG, this becomes even more difficult as there is no standard way to measure social impact and many of these indicators are qualitative in nature. As evidence of this, a global survey of investors conducted in 2021 by financial services company BNP Paribas found that 51% of respondents said social issues were the most difficult element of ESG to analyze.
IT can help develop indicators and measure the progress of social initiatives. While IT teams manage data privacy, security, and protection, data analytics tools are needed to track and analyze a company’s social impact. The CIO also believes that all social impacts should be included in his ESG report, including the positive aspects of how companies operate as part of society, not just the risks of operating in a more anti-social manner. We can also help you reflect this.
Another important task for IT departments is to ensure that technology is used in an ethical and responsible manner. This will become even more pressing in the AI era, where clear usage policies are required. Additionally, IT departments can foster digital inclusion by ensuring that all employees have access to the technology they need and by supporting community access to some technologies, such as high-speed Wi-Fi connectivity.
ESG investing has recently come under fire from some U.S. politicians, primarily Republicans. More than a dozen states, including Texas, Florida and West Virginia, have enacted laws that limit or prohibit ESG considerations such as decarbonization from influencing state pension funds’ investment decisions. In March 2023, Congress approved a Republican-led resolution blocking federal rules that would have allowed retirement fund managers to consider ESG criteria, but President Biden vetoed the bill. Despite the politicization of the issue, it is clear that his commitment to ESG in companies is here to stay.
Serafeim said: harvard business review article. He pointed out that the promotion of ESG factors, including social factors, is consistent with financial performance and business strength, noting that organizations “can survive unexpected shocks and challenges if managed properly over the long term.” “They are likely to be more resilient,” they wrote. social megatrends such as inclusion and climate change; ”