Introduction: The Evolution of ESG

ESG (Environmental, Social, and Governance) investing has become a cornerstone of modern investment strategies, but its origins trace back to the 1960s. Initially known as socially responsible investing (SRI), it excluded controversial sectors from investment portfolios. Over the decades, ESG has evolved, with environmental concerns gaining prominence in the 1970s and 1980s and the concept of Corporate Social Responsibility (CSR) emerging in the 1990s. The term “ESG” itself was coined in a 2004 United Nations report, solidifying its place in capital markets. Today, ESG is a critical framework for assessing corporate sustainability, with a focus not just on environmental and governance factors but also on social considerations.

ESG Reporting: A Deep Dive into Understanding the “S” Factor

While environmental and governance factors often dominate discussions around ESG, the “S” – social factors – are equally crucial. Social factors encompass a range of considerations, from employee wellbeing and diversity to human rights and community impact. Prioritising these factors is essential for building sustainable and equitable businesses. Let’s go deeper into some key aspects of the “S” in ESG:

1. Employee Wellbeing and Engagement:

Creating safe, healthy, and inclusive work environments is paramount for organisations prioritising social factors. This involves offering competitive salaries, benefits, and flexible work arrangements, as well as investing in employee development and training.

2. Diversity and Inclusion:

Emphasising diversity and inclusion fosters innovation and creativity by bringing together a range of perspectives and experiences. It not only promotes a sense of belonging and fairness but also contributes to better decision-making and problem-solving within organisations.

3. Human Rights and Labour Standards:

Upholding high standards for human rights and labour practices is crucial for addressing social factors in ESG. This includes adhering to fair labour practices, prohibiting child labour and forced labour, and ensuring that workers’ rights are protected throughout the organisation’s operations and supply chain.

4. Community Relations and Impact:

Maintaining positive relationships with local communities through engagement and charitable initiatives is vital. Addressing concerns and issues that impact residents demonstrates a company’s commitment to being a responsible corporate citizen.

5. Customer Satisfaction and Data Privacy:

Building strong relationships with customers and protecting their data privacy are essential elements of addressing social factors. Organisations should prioritise customer satisfaction, transparent communication, and responsible use of personal data.

6. Supply Chain Management and Responsible Sourcing:

Considering the social impact of the supply chain is imperative. Partnering with suppliers committed to responsible practices ensures alignment with social responsibility goals, addressing issues such as labour rights and ethical conduct.

7. Transparency and Disclosure:

Openness and transparency about social performance build trust with stakeholders. Regular reporting on key social indicators and progress towards social goals demonstrates a genuine commitment to addressing social factors.

We constantly hear from organisations and investors that investors want to see more diversity data. Currently, the depth and consistency of diversity data that is reported is well below what is expected or needed from most organisations. ESG’s work hand in hand with SDG’s and underpinning all of this is our nuanced understanding of human diversity: who we are and who we are representing and serving. We must understand this better if we are going to be effective and efficient with our ESG strategies. Without this data, there is additional cost in time and resources.

Michael Walmsley, Chief Experience Officer of Diversity Atlas

Challenges in Reporting Social Factors and ESG Reporting

Despite the growing recognition of the importance of social factors, reporting on them remains complex due to various challenges:

• Difficulty in Quantification: Social factors are often qualitative and challenging to measure consistently across companies and industries, hindering comparison and assessment.
• Data Collection and Privacy Concerns: Obtaining accurate data on social issues, such as employee wellbeing and diversity, can be challenging due to privacy concerns and other factors causing limited access.
• Limited Guidance and Regulation: Lack of universally accepted reporting frameworks and regulatory requirements results in inconsistent approaches and varying levels of disclosure.
• Stakeholder Expectations: Balancing diverse stakeholder concerns and priorities while prioritising material issues is a complex task for organisations.

ESG frameworks are a good guideline on how to identify and report set criteria according to various due diligence directives, legal compliance measures, and investor/shareholder requirements, but they cannot fully and accurately capture the reality of the impact of “S” on the ground. This is because how “S” manifests itself is so contextual – it depends on the industry, country, sector, local culture, and mostly because it intersects so closely with “E” and economic motivations. We need to continuously develop tools and refine frameworks that align with reality and provide a way to accurately measure and report the “S” impact in a detailed manner.

Van Ly, Generalk director and Mimi Vu, Parner at Raise Partners (Vietnam)

Measuring and reporting the “S” in ESG Reporting

Despite these challenges, organisations have developed methods to measure and report on social factors:

• Key Performance Indicators (KPIs): Establishing relevant social KPIs enables organisations to track performance on issues such as employee retention and community investment.
• Global Reporting Initiative (GRI) Standards: Many companies utilise GRI Standards for reporting on social performance, providing guidelines for disclosure on labour practices, human rights, and society.
• Community Representation: Understanding how well the diversity in the organisation represents the community and customers it serves.
• Sustainability Reports: Annual sustainability reports outline companies’ performance on social issues and progress on established goals, enhancing transparency and accountability.
• Third-Party Ratings and Rankings: Organisations such as MSCI and Sustainalytics assess and rate companies’ ESG performance, facilitating comparison across industries.
• Transparency and Disclosure: Publicly disclosing policies, practices, and performance related to social issues builds trust and fosters accountability with stakeholders.
• Inclusive Self-ID: Ensuring that comprehensive and inclusive insights across humanity’s rich diversity are included.

The “S” in ESG is often considered the heart of sustainable investing. It encompasses a company’s social factors, such as human practices, diversity and inclusion, human rights, community engagement, and product safety. In navigating the complexities of ESG reporting, having the right tool is paramount. It’s the compass that guides us through the vast sea of data, providing the insights needed to truly understand and address the social aspects. Without it, we risk sailing without a clear sense of direction, missing critical opportunities for positive impact. Diversity Atlas has been designed with this goal.

Rezza Moieni, CTO of Diversity Atlas

In the business world, multinational companies report on Environmental, Social, and Governance (ESG) in their annual sustainability reports. These companies employ various approaches to report on social factors, ensuring transparency and building trust with stakeholders.

One such company is Amazon Web Services (AWS), who take an inclusion first approach with their Inclusion, Diversity and Equity program, which has been the subject of international acclaim. This company uses the Diversity Atlas platform to provide accurate, inclusive diversity data, with a commitment to mapping their international workforce over multiple years. Through this groundbreaking ID&E program, they provide arguably the most in-depth reporting on not only the current workforce diversity data and are able to track progress from year to year.

Unilever, which provides comprehensive information on their social initiatives in their annual Sustainable Living Report. This includes updates on diversity and inclusion, fair compensation, employee health and wellbeing and community engagement. Unilever utilises quantitative data, case studies, and progress updates to showcase their commitment to social responsibility.

Similarly, Coca-Cola presents their progress on social factors in their Business & ESG Report. This report outlines their achievements in human rights, workplace safety, diversity, and community support, along with specific goals and targets for each area.

Intel is another company highlighting their social performance in their Corporate Social Responsibility Report. This report covers employee wellness, diversity and inclusion, supply chain responsibility, and community investments, using quantitative data, case studies, and continuous improvement goals to demonstrate their progress.

Lastly, Microsoft discusses their social impact in their Environmental, Social, and Governance Report. This report highlights their work in accessibility, digital skills development, human rights, and supplier responsibility. Microsoft also emphasises their partnerships and collaborations with organisations supporting social causes.

Organisations seeking to effectively report on social factors often find themselves at a loss – the ‘social’ sphere may appear to lend itself to subjective, qualitative information, which is antithetical to the numbers-driven world of corporate reporting. Diversity, Equity and Inclusion, as a part of the social sphere, is one element of social reporting, however, where data can play a significant role – thus strengthening any organisation’s ESG Reporting. Diversity Atlas provides a solution, answering with solid data the question of how to report on social issues with enough detail to satisfy investors and stakeholders.

The ESGs are paramount in promoting, sustained, inclusive and sustainable economic growth and full and productive employment. ESGs tie into SDGs which are all linked, interdependent and are all improved when we understand the diversity of our workforces.

Peter Mousaferiadis , CEO of Diversity Atlas

Conclusion: The Imperative of Social Considerations in ESG Reporting

In conclusion, while environmental and governance factors have traditionally dominated discussions around ESG, the “S” – social factors – are equally critical. Prioritising social considerations not only contributes to sustainable business practices but also fosters a more equitable and inclusive society. Despite challenges in reporting, organisations have developed frameworks and practices to measure and disclose their social performance, demonstrating a commitment to addressing social factors in the pursuit of long-term value creation and sustainable development.