In my previous article, I talked about the challenges of ESG and how a standardised framework should be designed and used in order to embed sustainability into everything that companies and individuals do. In this one, I will be focusing on the social aspect of ESG.
Let’s do a quick recap of what ESG is. ESG (Environmental, Social & Governance) are a set of standards measuring either a business or an individual’s impact on society and the environment, whilst also checking how transparent and accountable they are. The social component of ESG focuses on the way businesses interact with their employees and the communities in which they operate. There has been an increasing focus on the social part of ESG as much of the new approaches on sustainability investing are increasingly taking into account social issues.
Gender Equality
One social factor that can be measured in ESG is how staff are treated in their workplace; this includes human rights, workers’ rights and gender equality. Studies have shown that firms with higher gender diversity have been more profitable and are larger than firms with less gender diversity. There has been growing discussion and cries for further action on how to define and measure the gender pay gap. Examples where ESG has been implemented to address this issue include: training suppliers to develop awareness on gender-based violence, building local facilities that will disproportionately have a positive impact on women and girls, and implementing respectful programmes to adopt gender-focused policies. In 2015, Facebook launched “The Powerful Women in Tech” group, where events are held to bring women together across the world for panel discussions and film screenings. This has allowed women working with Facebook to gain additional professional development opportunities.
Human rights within the social aspect of ESG is quite broad and includes the thirty human rights listed in the 1948 Universal Declaration of Human Rights. This also includes proactively identifying risks and consequences for corporate social responsibility. Marks and Spencer has been ranked as one of the most responsible companies for human rights. They have responsibly sourced products from China and Sri Lanka by working closely with suppliers, promoting decent working conditions, and respecting human rights, whilst also having good transparency across their brand and reporting their supply chain practices.
Altogether, implementing human rights and promoting gender diversity within a workforce reflects the company as a whole and their services on wider society.
Diversity and Inclusion
Diversity and inclusion are an important social aspect that we see being increasingly implemented into businesses today. Diversity and inclusion boosts innovation and empowers people from marginalised communities. Google has managed to increase quality education by expanding the “Grow with Google” program to indigenous communities. As native-led businesses serve as the backbone for many tribal communities, this project has enabled local people to increase their skills and access more opportunities, whilst reducing the digital divide.
Implementing diversity and inclusion can help address issues on a wider scale such as climate change. A workforce that represents diverse ethnic and social backgrounds is more likely to understand how a business’ environmental footprint affects different communities. In addition, an inclusive and diverse workforce, empowers employees to feel confident in voicing their ideas and generating innovative solutions helping to solve existing challenges, such as environmental issues. Good sustainability strategies must embrace diverse communities.
It is also important to acknowledge social equality because social cohesion and our ability to adapt and mitigate the climate crisis are strongly linked, as inequalities are deeply rooted in climate change. A good example of a company that showcases this is Jacobs. They have created a plan in order to advance justice and equality. By achieving social equality amongst the workforce, Jacobs is structuring change in the broader society.
The links between ESG
Environmental, social and governance are all interlinked. Recent studies have shown that more than 90% of companies do not link compensation to ESG objectives. Rarely do, people look at the relationship between environmental and social concerns. As mentioned above, creating an inclusive and diverse workforce will enable people to generate innovative solutions. For example, people will be willing to communicate more and be open to change which will help towards creating sustainable solutions. Also, the relationship between social and governance helps businesses keep things in balance. For example, this relationship will help support the company’s efforts to develop control mechanisms and increase shareholder value, improving satisfaction among shareholders and stakeholders. Overall, social aspects are important to consider in ESG as they are all interconnected.
Conclusion
It is often common for people to ignore the social aspect within ESG or question its relevance. I can conclude that addressing social issues is important because in order to create sustainable solutions we have to promote an inclusive and diverse workforce/society and implement gender equality and human rights policies, while at the same time, make a positive contribution to society, whether that be addressing social inequalities or contributing to fighting climate change.
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