Tackling the S in ESG
The “S” in ESG sometimes gets forgotten.
After all, how often have you read up about environment, social and governance (ESG) and barely passed the first letter before you have too much information?
It’s true: there is enough information on the “E” part of ESG to fill stacks of encyclopedias, and why shouldn’t there be? It’s an important topic.
But it’s not the end of the road. And if you’re wondering how your board or leadership team can wrap their heads around the “S” in ESG, this guide will help.
What does the “S” in ESG mean?
“S” stands for social. It concerns a company’s relationships with its employees, the residents of its communities, and governments.
The social side is about the impact a company has on these stakeholders. In the past, this might have mattered a great deal; nowadays, it’s a different story. Think of attention given to diversity, employee welfare, work-life balance, and community participation.
How should boards approach the “S” in ESG
There are some general tips you should consider:
Each letter in ESG represents a vast ocean of information, so it helps to carry a mental Post-It note with the most critical points. For the “S” in ESG, the word “rights” should be at the top of that note.
Rights are the key metric for the social side of ESG. Employees have rights. Community groups have rights. National populations have rights. Sometimes the rights are codified by law or ordinance; sometimes, they’re cultural precedents.
And more often than not, a company will find itself in the middle of the drive to safeguard those rights, whether it wants that role or not.
You need to know whose lives your business impacts and how much it impacts them.
With your colleagues, work to identify every single group of stakeholders in this category. These are the people you focus on and whose progress will give you a metric for success or failure.
Stay in touch with those stakeholders. Find out what they expect from your company and how you can provide for them. A lack of communication can ruin the best and most thought-through intentions.
Does your board or executive team have the expertise to handle the “S” side of ESG properly? If not, why not? And how are you going to address that situation?
Think about specialised training in this area if necessary. It’s a great way to ensure you’re set up for success from the beginning.
Measurements and reporting
You must decide on the metrics you will use to measure your “S” progress. Investors (and sometimes governments) want to see this when checking up on your business.
Some metrics, like employee satisfaction, will be harder to measure. Some, such as staff diversity or pay gaps, are relatively easy to report on.
Whatever method you choose to measure and report, ensure it is concise, verifiable and easily understood by external stakeholders.
The wider context
Increasingly, lawmakers are stepping in with new regulations to safeguard principles in the “S” category legally. Your job is to know these regulations and ones that may become law soon.
Since the pandemic, for example, governments have proposed laws to codify a right to “work from home” where possible. If you expect this kind of law in your jurisdiction, you may need to figure out how your business will handle it.
Remember the purpose of ESG
ESG represents an investor’s desire to know where their money is going so they can make decisions based on value and principles.
At its core, it’s a system of actions and reporting. Remember that when it comes to the “S” in ESG.
While your focus should be on staff, communities and interactions with local laws, your actions mean little if you cannot collect and report data on these areas of focus. This is what investors will want. And, as lawmakers continue their drive for more social responsibility, it’s what governments will want too.
The “S” side of ESG is all about the people your business interacts with and their rights.
Many moving parts are involved with tackling this area properly, so it’s essential to be clear on your role early on.