When companies released social media statements about women’s empowerment for this year’s International Women’s Day, their Twitter accounts said:Gender Pay Gap Bot”, he was ready to call out to those who were not taking the walk.
For each tweet praising the accomplishments and value of a company’s female employees, the bot responded with a reply tweet detailing the respective company’s publicly available gender pay gap data.
While interesting, this series of events has spotlighted the issue of ‘social wash’ – the practice of companies making misleading, exaggerated or unsubstantiated claims about managing social risks and issues. Masu.
Data on this type of risk management are limited, so social washing is likely widespread and often left unchecked. Investors need to promote greater disclosure to assess whether social risks are being effectively managed.
What is social washing?
Similar to the well-known greenwashing, social washing occurs when there is a disconnect between perceived commitment to an issue and true action.
This practice may take the form of brand activities and corporate statements on broader social issues such as diversity, equity, and inclusion. Labor standards. racial justice. human rights; product safety; and data privacy.
Making such statements without taking concrete actions can hide poor social risk management, create reputational risks for companies, and encourage companies to avoid managing social issues in investment decisions. This could potentially mislead your preferred impact-oriented investors.
What is behind the increase in social wash? Simply put, internal and external stakeholders are placing increasing emphasis on managing social issues, and companies are under pressure to address gaps or at least pay lip service to the cause. It’s being done.
This pressure is expressed as:
- an increase in shareholder proposals and corporate disclosures related to social risks;
- regulatory and advisory bodies such as the United Nations Principles for Responsible Investment, which raise the profile of social issues;
- Younger generations are prioritizing social issues when choosing an employer,
- Consumers consider a company’s stance on social issues when making purchasing decisions.
Although it is difficult to pinpoint the exact trigger for the increased awareness, we expect the culmination of several recent events to bring social risks into sharper focus. For example, the coronavirus pandemic, the Black Lives Matter movement, and the deterioration of reproductive rights in America. US.
What does social cleansing actually look like?
Brand activism is a form of high-profile social wash commonly deployed by consumer-facing companies that exposes companies to consumers in thinly veiled attempts to profit from social causes. There are many examples where this behavior backfired.
As the Guardian pointed out, these include:
- Grocer Marks & Spencer sold an “LGBT sandwich” in Britain to coincide with Pride Month celebrations, but refrained from selling the product in markets where homosexuality is illegal.
- Audi ran a Super Bowl campaign to promote gender equality, even though the company had a low representation of women in management positions and had no female directors at the time.
At the same time, companies are increasingly required to respond and take a stand on high-profile social issues while reconciling the conflicting interests of their stakeholders. This necessarily means alienating certain groups and appeasing others.
Recent examples include companies like Citigroup and Lyft publicly announcing support for employees seeking abortion care in a post-Roe v. Wade world. That stance appeased pro-abortion-rights employees, but prompted anti-abortion rights activists and conservative lawmakers to respond with legal threats.
Even when companies act with social pressure in mind, there can be negative financial consequences, as seen for major apparel companies such as H&M, Nike, and Adidas. These companies changed their sourcing strategies to avoid Xinxiang over concerns about Uighur forced labor, causing sales in China to decline as consumers boycotted Western brands.
But remaining silent on social issues is also a dangerous strategy. This led to Florida’s Parents in Education Bill of Rights, commonly known as the “Don’t Tell Me I’m Gay” bill, a bill aimed at restricting discussion of sexual orientation and gender identity in schools. Initially signaled by Disney’s decision not to denounce. Disney employees expressed outrage, as did members of the LGBTQ+ community, with whom Disney has had a beneficial relationship. Disney quickly reversed its stance, pledging to donate $5 million to organizations supporting LGBTQ+ rights, signing a Human Rights Campaign statement opposing such legislative efforts in other US states, and suspended political donations, angering Republican supporters. This came after it was revealed that the company had previously donated to politicians who sponsored the bill.
While it’s too early to tell whether this mixed message will have a negative financial impact on Disney, such as through increased employee turnover, the size of the pledged donation is likely to affect the company’s 2021 fiscal year net income. Compared to about $2 billion, most of it is token.
Nevertheless, poor communication can lead to backlash from both sides of the debate, as seen in the Coca-Cola example. Although Coca-Cola initially refrained from taking a public stance on Georgia’s voting law, it criticized the bill after it passed, resulting in a rotating boycott and reputational damage.
Finally, social wash is most commonly observed in vague and lofty corporate statements contained in corporate reports such as annual reports and corporate social responsibility reports, or, as mentioned above, through social media.
Social wash can hide or increase risk
Social cleansing practices can lead to poor or even increased social risk management.
Brand failures and backlash from companies that have taken a stand have proven to be unimportant to a company’s reputation in isolation.
But poorly managed social risks masked by unsubstantiated claims are likely to be more meaningful. For example, if a company diverts attention from poor labor relations or a lack of good DEI practices, making exaggerated claims and taking no action, it can lead to higher operating costs, lower productivity, and lower employee turnover. There is a risk of an increase.
In the future, companies that engage in social washing could also be exposed to regulatory fines by consumer advocacy groups that crack down on false or misleading advertising, as has recently happened with greenwashing of consumer products. It is expected that
Nevertheless, a more pressing concern is that if a company’s commitment turns out to be unsubstantiated, the company will be exposed to reputational damage and will have difficulty attracting and retaining both customers and employees. That means there are risks.
For example, as noted in the Harvard Business Review, employees are empowered to voice calls for racial justice and highlight the lack of substantive action in support of it and the hypocrisy. He is becoming increasingly disillusioned and angry at the disparity between the two.
Social media also increases this risk. This is because both good and bad opinions are amplified on the Internet, and companies that make shallow or unsubstantiated claims run the risk of being exposed in public.
Starbucks has a reputation as a socially progressive employer that provides generous employee benefits and supports liberal social causes. But it was also linked to union-busting efforts, and employees called out the company on social media about the dispute.
Data holds the key to unlocking social cleansing practices
To uncover social cleansing and assess whether social risks are being properly managed, investors need to push for greater data disclosure.
However, unlike environmental risks, for which there are well-established frameworks and comparable indicators such as carbon emissions, measuring social risks remains a developing field.
Social risk-related data (particularly diversity data such as employee race/ethnicity, gender identity, sexuality, and disability status) is typically collected through self-identification and voluntary disclosure, and is typically collected through self-identification and voluntary disclosure. Collection is prohibited in some areas under privacy laws. As a result, available data are often measured and reported inconsistently, are often qualitative, localized, and difficult to compare across organizations.
There is currently a patchwork of laws and disclosure rules that guide conduct and regulate policy, record-keeping, reporting, and board representation. These include mandatory gender pay gap disclosure by UK companies with 250 or more employees, mandatory disclosure of diversity policies and practices by some Canadian companies to boards and senior management, and Nasdaq Securities. This includes requiring exchanges to require listed companies to disclose board diversity data.
In the future, it is expected that regulations will develop towards the standardization of such data. But in the absence of a comprehensive data set, there are things investors can do to assess a company’s commitment.
- Take note of the various company disclosures, third-party data, and frameworks. To evaluate the management of social issues. This includes guidelines from organizations such as the PRI, the International Capital Markets Association’s Social Bond Principles for Impact-Focused Investors, and Morningstar Sustainalytics’ ESG Risk Rating.
- We aim to enhance information disclosure through shareholder proposals. This includes voting in favor of race equality audits, which provide an independent assessment of companies’ efforts to address racism. In the wake of the Black Lives Matter movement, these proposals reflect companies’ progress on racial justice commitments and how their current operations may be contributing to systemic racism. It has become increasingly popular as a method of evaluating The company has the backing of major shareholders from major companies such as JPMorgan Chase & Co., Johnson & Johnson, and Amazon.com.
- Assessing corporate political contributions To determine if their money is really where their mouth is. For example, as highlighted by Responsible Investors, several companies like CVS Health, Citigroup, and Amazon have publicly announced their support for the reproductive freedom of their female employees, and several companies like AT&T have promoted women’s empowerment as a core value. Big corporations were also top donors. To the politician who helped overturn Roe v. Wade. Although it is difficult to pinpoint political donations to specific purposes, investors can use such donation data to assess potential disconnects in managing social risks.
Assuming regulatory and market pressures improve data disclosure, the next frontier is understanding how to analyze social risk data itself.
We expect that increased visibility will allow investors to more specifically link social risks to valuation impacts. It will also be possible to develop appropriate social risk management standards using frameworks such as the United Nations Sustainable Development Goals.