Because it represents the “how and why” of a firm and because social movements are the only effective means of bringing about the tremendous and long-lasting change the world needs, the social pillar of ESG is crucial.
What Does “S” Mean in ESG?
ESG’s “S” stands for “Social.” Social is significantly more difficult to define than the letter Environmental, which comes before it. Several research institutes and houses have varying definitions, some of which include characteristics while others exclude others. It’s a broad but open-ended word that encompasses anything that could (or ought to) impact a company’s or portfolio’s overall social good factor.
The word “social good” is likewise somewhat nebulous and frequently used to refer to a multitude of different topics. From a citizen’s viewpoint, social goods may be characterized as any constructive acts made to enhance the general well-being of others nearby. This might range from cleaning up trash and washing the streets to keeping an eye out for one another. However, the term “social” may signify much more from the standpoint of a firm CEO, an asset manager, or a portfolio manager.
It involves more than just being environmentally conscious. It also means providing a safe and welcoming working and living environment for your neighbours, renters, and employees in whatever way you can. It fosters stronger communities, advancing social concerns, and helping local companies, causes, and charities.
Factors Influencing Social ESG Score
Diversity and inclusion: open-minded policies that oppose prejudice and foster a productive workplace environment.
Fair compensation: The Social component of ESG frequently includes an evaluation of employee remuneration. Employees who receive payment more significant than the industry average, as well as superior benefits and retirement plans, often perform well.
Education: another strategy to increase social ratings is to educate workers or provide enrichment funding.
Flexible working hours: Since the Covid-19 epidemic, providing employees with relaxed or flexible working circumstances has helped them better their work/life balance and develop trust between businesses and employees.
Employee turnover: To calculate a social score, the frequency of employee turnover is frequently employed as a criterion.
Company relationships: A company’s adherence to ESG principles extends beyond commercial connections and is demonstrated by how it engages with neighbourhood companies, charities, and causes. Equally crucial is how a corporation acts toward its neighbours.
Company hierarchies: A vital aspect of the social factor is accessible management and a readiness to respond to input.
Tenant relationships: A landlord’s treatment of their tenants is crucial from a real estate standpoint. The social component of ESG consulting in real estate is critical, and property owners that take diligent care of their assets and prioritize the needs of their tenants are likely to have satisfied, long-term renters inclined to sign longer leases.
Company ethics: A relevant and helpful socially responsible mission statement is a clever method to develop a positive reputation for social good. However, it must be backed up by constructive acts, such as consistent donations to charity organizations, a political stance that is democratic and inclusive, or a record of accomplishment of solving environmental issues.
Reputation: The quality of a company or portfolio depends on its reputation. ESG’s fundamental components include addressing social issues and promoting social fairness, equality, and forward-thinking corporate practices.
What Value Can Social ESG Strategies Add?
Incorporating a solid social focus into an ESG strategy may help a firm maintain its reputation, preserve its value, and attract new investors. If a company’s reputation is reflected in its social status, it will also reflect the morals and ethics of its shareholders. A business that can show a solid commitment to bettering the lives of its stakeholders and workers is seen as more desirable than one that does not consider social issues. That is all there is to it.
But Social is more than just doing good things to have a good reputation. A firm or portfolio is forced to make rational judgments that can help safeguard shareholders’ interests if it can function within the bounds of decency and morality.
As you can see, there are several ways to interpret the “S” element of ESG, but it does not mean you should disregard it or ignore only a portion of it.
There is a clear rising tendency, and as that movement intensifies, so does the concept of “value.” The value here goes beyond only short-term financial gains. It is a more inclusive, all-encompassing word that emphasizes social good for the benefit of all stakeholders.
Although measuring the effect of social policies on ESG is difficult, it is necessary. For all organizations and portfolios aiming to advance with a game-changing social strategy, finding an accurate appraisal of your social status quo is essential. Because openness and honesty are at the heart of the social aspect, it fosters inclusion and equity, creates profitability, and provides value all at once. For ESG advisory services, you can contact us at SG Analytics.