Social pillar of ESG

What does social encompass?

ESG is built on three key pillars: Environmental, Social and Governance, which themselves each encompass a broad range of topics.

The Social component reflects the company’s ‘how’ and ‘why’ in relation to treatment of people, and includes a range of areas including, but not limited to, health and safety, labour rights, diversity & inclusion, human rights & modern slavery, cultural heritage management, social procurement, community activity and employee engagement. Despite the obvious importance of these aspects to every business, the Social aspect of ESG is often overlooked when compared to the emphasis that is placed on the Environment and Governance pillars.

Key risks

Although social risks may in some instances be less noticeable than environmental and governance risks, they can be just as detrimental if they are not well managed. Discrimination, privacy breaches, workplace psychosocial hazards and poor safety conditions, labour abuse and human rights violations are some of the social risks that can carry significant financial penalties and harm a business’ reputation. A number of large corporate organisations have experienced the effects of social risks when they are not appropriately managed, highlighting the importance for businesses to have this front of mind.

The benefits of good “Social” practices

Getting the people factor right can provide a strategic competitive advantage. The process of working on the environmental or governance areas is much easier if the business has mastered the social pillar. While it can often be difficult to measure, standardise and benchmark components under the social pillar, strong practices under this pillar play a significant role in the long-run for the following reasons:

• Employee attraction and retention: employees want to be associated with businesses that promote and are committed to the social pillar (e.g. inclusive workplaces, employee wellbeing programs, etc.).
• Reputation and trust: through meaningful relationships with key stakeholders this increases loyalty, trust and the value of the business brand.
• Risk management: implementing good risk management processes, systems and controls prevents risks from eventuating.
• Regulatory compliance: due to a shift in stakeholder’s expectations and requirements, there are ever increasing compliance requirements. As an example, social procurement requirements are being included in tender requirements as a pre-requisite for participation.
• Community worth: through actively supporting and bringing the local community together.
• Financial: through enhanced operational efficiencies and reduction in costs as a result of implementing the above activities. Further, access to capital investment through attraction of impact-oriented investors.

How can you enhance your business’ social impact? Some practical tips

With discussions around ESG continuing to grow, it is imperative that organisations recognise and proactively embed social factors into their overarching business strategy as this will help position the business for long-term success.

The first step required is for organisations to identify social matters related to their business needs and strategic direction, and developing specific goals associated with these. The UN Sustainability Development Goals THE 17 GOALS | Sustainable Development provides a listing of goals that businesses can refer to for guidance. Once identified and goals have been established, organisations should explore ways that they can implement social activities to achieve their related goals, and using their available resources.

Businesses can strengthen their social practices by doing a number of things, including:

• ESG assessments: undertaking a formal assessment to help identify and prioritise which social matters and initiatives are most relevant and impactful to the business operations and stakeholders, both internal and external.
• Embedment in governance structures: by incorporating social activities into business governance structures (e.g. establishment of formal diversity, equity and inclusion working groups, workforce health and safety committees, etc.).
• Policies, frameworks and tools: implementing strong policies and frameworks and investing in the right tools to better measure, monitor and report on their social impact.
• Partnerships: working with other organisations (e.g. non-profit and community businesses) to better understand and be involved in social matters which will ultimately result in a greater impact. For example, holding regular stakeholder meetings or conducting surveys to gather information and feedback on social activities, volunteering work and making the necessary adjustments to the business approach where required.
• Compliance monitoring: Through regular audits and compliance checks across various business activities which will assist in identifying and addressing potential risks (e.g. supply chain, health and safety, privacy, etc.).
• Enhancing transparency: by openly communicating to stakeholders on the progress of social initiatives. This may be through reporting periodically on both successes and areas of improvement and can be a valuable mechanism for building trust.

In carrying out the above, organisations need to promote a good culture where social impact is prioritised and where employees see its value and carry the necessary experience. This tone should be established and communicated from the top, starting with the Board and Executive management.

Giving adequate attention to the social aspect of ESG is of critical importance. As ESG regulations tighten, and stakeholder expectations are shifting, it is essential for businesses long-term resilience and sustainable growth.

How can HLB help?

Accounting and finance professionals play an important role in providing assurance and advice on social matters and ESG more broadly.

Our experienced team at HLB Mann Judd can help you in your journey by performing:

• ESG assessments.
• Gap analysis reviews against better practice standards.
• Internal audits.
• Developing a roadmap of practical actions to address gaps / improvement opportunities.

This could be across key matters such as, but not limited to, privacy, gender equality, health, safety and psychosocial / wellbeing, modern slavery and social procurement, etc.

Get in touch with your local HLB Mann Judd contact to learn how we can assist you further.