July 12, 2022
ESG 101: What does social in ESG mean?
13 Min Read
Today’s society is more willing to be vocal and hold anyone accountable than a generation ago. Even before the death of George Floyd lit a match for social justice movements around the world, activism was on the rise. Examples include Fridays for Future, Extinction Rebellion, #MeToo, March for Science, the Women’s March, March for Our Lives, and more. Businesses around the world need to sit up and listen because these are their employees, their investors, their customers, their partners. They have found their voice, and are speaking through protests, social media, boycotts, resignations, and more. On the bright side, ethical and sustainable businesses have a real opportunity to be a force for good while gaining a competitive advantage. They can attract and retain the best talent and partners, acquire more customers at lower costs, attract investment with better terms, and more. In this continuation of our ESG 101 blog series, we’ll be taking a closer look at the S, or Social, in ESG: What it is, why social impact is important, and how to map ESG social to Sustainable Development Goals (SDGs) and incorporate it in your sustainability strategy.
Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. – Larry Fink, Chairman and CEO, BlackRock
Download the infographic to explore common ESG metrics and how to map them to the UN SDGs
What is the S in ESG? What does social in ESG mean?
The S in ESG stands for Social. At its core, ESG social is about human rights and equity – an organization’s relationships with people, as well as its policies and actions that impact individuals, groups, and society. In a business context, it examines all people interactions against principles of ethics, justice, and care for wellbeing. This can be as basic as how they treat their employees or as far-reaching as their impact on customers, partners, and other stakeholders. It considers topics like inequality, working conditions, human rights, product safety, community relations, supply chain transparency, and more. ESG Social performance indicators can include things like diversity, income equality, workplace injury rates, philanthropy, and labor practices of suppliers. The goal of these factors is to measure how well the organization is meeting its human obligations in operations, global supply chains, and local communities. Organizations that successfully adopt the social pillar of ESG recognize that business operates within the context of a society that is intrinsically inequitable. This means that some individuals are subject to more systemic inequalities and injustices than others, and businesses have a responsibility to address the inequities within their locus of control. Otherwise, they become participants in a system that upholds them.
“Directly or indirectly, companies affect what happens to employees, workers in the value chain, customers and local communities, and it is important to manage impacts proactively.” – UN Global Compact
Key drivers shaping ESG social impact goals – why is social impact important?
ESG social topics may not be as easy to measure as environmental issues, but there are several trends driving how companies define and report on social impact to their stakeholders. In many parts of the world, social issues have been enacted into law (e.g., minimum wage, worker health and safety standards, anti-slavery regulations, whistleblower protections, data privacy, etc.) Additional drivers may include customer and partner expectations, employee activism, boycotts, pressure from NGOs and lobby groups, etc. Being a good corporate citizen can also bestow benefits such as cost reduction and competitive advantage. This may be why philanthropy and workplace giving have been around since the early 1900s as a way for companies to give back. Over time, these charitable initiatives tended to merge with other business areas such as compliance, risk management, employee engagement, etc. and evolved into holistic corporate social responsibility (CSR) programs. Today, many companies report on their CSR program under the S in ESG.
“The most successful companies don’t target profit directly but are driven by purpose – the desire to serve a societal need and contribute to human betterment.” – Alex Edmans, “Grow the Pie”
Infographic: ESG social and UN SDGs mapping
The following infographic defines the ESG topics in the social pillar within the context of business operations.
Human Capital (HC)
Human capital represents the people who contribute to the products and services a company offers, including employees, suppliers, etc.
- (HC1) Employee relations, DE&I: What are the characteristics of the workforce (size, locations, etc.), and how is it managed? What practices, policies, benefits, protections, and employee engagement activities are in place to ensure positive, equitable, and fair employee relations? Are there meaningful policies and programs in place that support diversity, equity, and inclusion and prevent harassment?
- (HC2) Working conditions: How is workplace safety managed? What standards are in place to prevent conditions that are detrimental to worker health and safety?
- (HC3) Employee development: How is talent acquired, retained, and developed? Is there any investment in employee development and training?
- (HC4) Third party/supply chain labor standards: What do the working conditions look like across the supply chain and with third-party vendors? Are policies in place to ensure compliance with fair labor standards? Are human rights respected, factories safe, and local communities treated fairly and respectfully?
Product Liability (PL)
Product liability speaks to the impact of your products and services on society, quality of life, safety, and equitable outcomes.
- (PL1) Product safety and quality: Have there been any product recalls or safety concerns? What standards are in place to ensure responsible sourcing, manufacturing, and marketing practices? Is user health and wellbeing prioritized?
- (PL2) Chemical safety: Are there any hazardous chemicals in the product portfolio, and, if so, what efforts are underway to develop less harmful alternatives? What is the potential exposure to current or future chemical regulations? Are chemicals handled and disposed of responsibly?
- (PL3) Financial products safety: How are financial products and services managed and sold? Are there any reputational or regulatory risks associated with unethical lending or marketing practices?
- (PL4) Privacy and data security: How much personal data is collected and what systems are in place to protect it? What is the potential exposure to data breaches and evolving privacy regulations?
- (PL5) Responsible investment: How are ESG considerations integrated into managed assets?
Stakeholder Opposition (STO)
Stakeholder opposition deals with increasing demands for transparency and ethics in business practices.
- (STO1) Controversial sourcing: What is the dependence on and purchasing volume of materials and services from conflict areas? Are there due diligence processes in place to assess and manage the risk of slavery and human trafficking?
- (STO2) Supply chain transparency: Are there any efforts to improve supply chain traceability and certification around ESG principles?
- (STO3) Community relations: How are local community relations managed? What initiatives are in place to provide benefits to local communities? Are there any policies addressing conflict and human rights?
Social Opportunities (SO)
Companies have many ways to be a force for good and contribute positively to equitable access to resources, health, and growth. This can be through philanthropy or by providing access to products and services to underprivileged social groups.
- (SO1) Access to communication/s: What efforts have been made to expand connectivity and access to information in underserved markets such as developing countries, rural, or elderly communities?
- (SO2) Access to finance: Are financial services being extended to underserved markets through mechanisms like small business lending or innovative distribution channels for developing countries?
- (SO3) Access to healthcare: Is there any expansion of health care products and services to underprivileged areas such as developing countries or communities with low physician concentration? Examples could include things like equitable pricing mechanisms, new innovations, capacity advancement, donations, skill sharing, volunteering, and more.
- (SO4) Opportunities in nutrition and health: What is the nutritional content of food products and what efforts are underway to develop products with improved nutritional or health benefits?
SDG ESG Social mapping
Mapping your ESG program to the United Nations Sustainable Development Goals (UN SDGs) can help demonstrate how you are contributing to a more peaceful, equitable, and sustainable world. And, as discussed in the first blog in this series, integrating these SDGs into your ESG reporting is easy if you can map them to the corresponding ESG pillar. The ESG social pillar aligns with 11 of the 17 SDGs as shown below. We’ve also outlined some example activities a business may pursue to include the SDGs and target outcomes identified by the UN in its ESG social impact program.
|SDG||Description||Example Business Actions / ESG topic mapping||Number of companies reporting|
|SDG 1: No Poverty||This is a key ESG issue because it is difficult for people struggling to meet basic needs to think or act for the long-term sustainability of our planet.||Provide fair wages and training for impoverished communities. Develop products and services for people with low incomes (e.g., mobile money transfer services for the unbanked). ESG social topics: HC1, HC4, STO3, SO all||11,800|
|SDG 2: Zero Hunger||Food security is vital for businesses to include in their ESG strategy since it is at the heart of a stable global economy.||Ensure food safety, labeling, and affordability. Source and invest in sustainable agricultural practices, enhance supply chain transparency, partner with small-scale producers, and facilitate genetic diversity in farmed crops and animals. Businesses that are not part of global food systems can also contribute by implementing sustainable practices that reduce reliance on natural resources and working in partnership with other actors in global food systems. ESG social topics: PL1, PL2, PL5, STO2, SO4||9,748|
|SDG 3: Good Health||Businesses can only operate within a healthy society, and the global pandemic has elevated the importance of this intersection. Positive employee well-being can also improve productivity, retention, etc.||Ensure that workers throughout the value chain have safe working conditions and access to health services. ESG social topics: HC2, HC4, SO3||24,037|
|SDG 4: Quality Education
|Investing in education can help improve brand leadership, develop the next generation of workers, and build a more diverse employee pipeline.||Provide continuing education for employees. Create work programs for students. Develop products and services to improve the access to and quality of learning opportunities. ESG social topics: HC3, PL5, STO3, SO1||21,927|
|SDG 5: Gender Equality||Companies have a legal and ethical responsibility to respect human rights, including the rights of women and girls. Incorporating women into the workforce accelerates corporate, community, and national growth.||Go beyond anti-discrimination compliance and actively pursue a company culture that is inclusive and equitable to all genders. Pursue equal pay and anti-harassment policies across the value chain. Ensure sufficient participation of women in leadership and decision-making. ESG social topics: HC1, HC3, HC4, PL5, STO all, SO all||26,757|
|SDG 6: Clean Water & Sanitation||Declining water quality and availability is a growing business risk. By adopting a sustainable water stewardship strategy, companies can reduce risk and make a positive contribution to sustainable development.||Ensure manufacturing and product operations have a neutral or positive impact on clean water access for communities. Improve water efficiency and reduce pollution by implementing technologies and processes for water conservation and wastewater treatment. ESG social topics: PL1, PL2, PL5, STO3||15,296|
|SDG 8: Decent Work & Economic Growth||Companies that embrace diversity, inclusion, and fair labor standards across their value chain can improve the talent pipeline and productivity. They also have a lower risk of reputational damage and legal liability.||Develop transparent career pathways to help employees achieve personal growth objectives. Implement fair labor standards and training programs across the value chain. ESG social topics: HC all, PL5, STO1, STO2||29,786|
|SDG 9: Industry, Innovation & Infrastructure||Companies rely on materials, resources, labor, and services in the locations where they operate. By investing in local infrastructure and industry, businesses can reduce risk and contribute to sustainable development.||Expand research and development facilities to developing countries. Invest in local infrastructure, energy, and communications technologies. Include marginalized/minority groups and business owners in development projects. ESG social topics: PL5, STO all, SO1, SO2||18,897|
|SDG 10: Reduced Inequalities||Companies have a legal and ethical responsibility to respect human rights, including worker rights across the value chain.||Implement policies and programs that support diversity, equity, and inclusion across operations and the value chain. Develop products and services for people with low incomes. Recruit and train people from impoverished communities and integrate them into your supply chain. ESG social topics: HC all, PL5, STO all, SO all||15,088|
|SDG 12: Responsible Consumption||Unsustainable production and consumption patterns are rapidly exceeding the ecological limits of the planet. Business demand for materials will outpace natural resource constraints, increasing risk.
|Identify hot spots in the value chain where interventions have the highest potential impact. Implement sustainable product lifecycle practices (sourcing, manufacturing, end of life). Recycle materials. Develop products and services that will empower customers to adopt more sustainable consumption patterns. Reduce waste. ESG social topics: PL1, PL2, PL5, STO1, STO2||24,086|
|SDG 16: Peace & Justice||Companies prosper in locations with peaceful, just, stable environments. Businesses can help facilitate a peaceful, inclusive society by fighting corruption and supporting the rule of law.||Create and enforce transparent accountability mechanisms. Comply with laws and seek to meet international standards throughout the value chain. Practice ethical leadership and weed out systems that protect wrongdoers and harm workers. Engage in public-private collaboration aimed at building a peaceful, inclusive society. ESG social topics: HC1, HC2, HC4, PL5, STO all, SO all||16,178|
How can companies include ESG social and the UN SDGs in their ESG reporting?
There is a wide variety of ESG reporting frameworks and standards available such as SASB, GRI, and more. While there is no right or wrong answer, keep your business strategy, program goals, and stakeholder needs in mind when choosing a framework to use. When considering ESG social topics specifically, the following table indicates which GRI and SASB standards would apply. The SDG business indicators and assessment tools noted above may also be helpful.
How can OneTrust help with ESG Social?
As you develop your ESG social impact strategy, you need a way to embed and automate ESG into business and reporting processes. The OneTrust ESG & Sustainability Cloud enables you to define core ESG metrics, track progress towards those goals, and foster trust with key stakeholders through enhanced transparency. It is part of the Trust Intelligence Platform™ that unifies data, workflows, and intelligence for all aspects of trust: privacy, GRC, ethics, and ESG.
Download the infographic (PDF) for a handy reference on the ESG topics in the three pillars of a sustainable business and SDG ESG mappings to help you build your ESG strategy.