The ‘S’ or social aspect of ESG is a broad topic that involves understanding the relationship between a business and its internal and external stakeholders to help identify and address the social issues affecting a business. These social issues can affect an organisation’s interactions with its community as well as the organisation’s policies and practices. Identifying these issues and incorporating them into an organisation’s strategy could be one way to ensure a proper and responsible way of doing business while generating value for all stakeholders.
What does the S component of ESG cover in terms of businesses?
The social element of ESG includes a diverse set of factors, opportunities, and risks that may have an impact on internal and external stakeholders, which may affect the business’ value and image. Sustainability-related firms (such as the reporting standards organisation GRI and the sustainability rating organisation MSCI) break down ESG elements through their ESG frameworks and standards. However, in general, they serve the same purpose which is to act as a guideline that gives an overview of how the various ESG elements have to be taken into consideration in the business context. Some social issues cover a wide range of topics, including:
- Human rights
- Customer satisfaction
- Wage equality
- Labour standards
- Employee satisfaction and engagement
- Inclusion, Diversity, and Equity (IDE)
- Health and safety at workplace
- Ethical supply chain practices
- Training & workforce development
- Data protection & privacy
Why should we consider implementing the social criteria and how can the ‘S’ criterion of ESG add value?
Implementing the social aspects and addressing the issues in your community could potentially lead you into transforming your business into a more purpose-driven one. Purpose-driven brands make conscious efforts throughout all of their actions and decisions to adhere to their core mission. Defining your business purpose can be critical to maintaining a long-term competitive advantage and increasing the level of trust between all stakeholders and investors. According to a study done by a global communications firm across 8 countries including Malaysia and Singapore, when consumers think a brand has a strong purpose, they are 4.1 times more likely to trust the company and 4 times more likely to purchase from the company. The purpose may not be directly linked to profitability but, in many cases, drives outperformance.
Implementing the social aspect of ESG into your business can also improve employee productivity and financial performance. In general, according to a PwC study, ESG can create financial value for companies in the long term such as cost reduction, new revenue, access to finance, and productivity. When employees feel included, they’re more engaged, which has a positive ripple effect on productivity, morale, and trust.
By having a positive social impact, your business could also attract investors. Socially responsible investing (SRI), also known as social investment, is an investment that is considered socially responsible due to the nature of the business the company conducts. Stakeholders, in this case, investors, expect businesses to consider the impact of social issues on their business practices, operations, and value propositions. Regulators and governments around the world, too, have started incorporating social issues into policymaking and disclosure rules. These are some of the reasons why you should consider implementing social criteria into your business practices.
How to incorporate the ‘S’ in ESG into your business function?
- Ensuring the minimum wage is paid
The purpose of minimum wages is to protect your employees from unfairly low pay. Knowing your regional minimum wage and making sure that your employees get paid fairly, improve the welfare of workers at the low end of the ladder, while also reducing inequality and promoting social inclusiveness.
- Ensuring equal pay between your male and female employees
Men and women performing the same work or performing different work of equal or comparable value should be paid the same amount. This may happen because of conscious and unconscious discrimination and bias in hiring and pay decisions. Businesses can make a big difference by understanding the size of the gender pay gap, and taking action to increase the number of women in leadership positions for instance.
- Identify the social issues that are relevant to your business
Try asking yourself, what social issues are currently relevant to your business and community. The goal is that, when supporting a social issue, you should focus on those that most align with your business and customers’ core values. For example, L’Oréal, a global cosmetics brand based in France, answered a question they asked themselves, “Why doesn’t makeup match every skin tone?” by integrating it into their mission, “Beauty for All.” This is reflected in the skincare, makeup, and hair products they carry, which cater to all skin types, skin colours, and hair types. This was done by incorporating Inclusion, Diversity, and Equity considerations into their company strategy and core values.
- Invest in your employees’ future by conducting training & development
Training and development could help your business gain and retain top talent, increase job satisfaction and morale, improve productivity and eventually, create more profit. Providing opportunities for employees to explore new topics, refine their skills and expand their knowledge can also help your business to keep pace with changes in the industry.
At Funding Societies | Modalku, we aim to implement the social aspects of ESG by adhering to internationally recognized standards and integrating it into our organisation, where we protect the interests of our stakeholders. Some of our initiatives include:
- Adhering to the UN Global Compact’s Ten Principles, which covers the topics of labour and human rights. We make an effort to include the principles and practices recommended by UNGC within our organisation.
- We have an Inclusion, Diversity, and Equity (IDE) department that, among other topics, also promotes women empowerment programs for our female employees, through campaigns such as the #MakingHERstory series and #IamRemarkable initiatives.
- We have pledged to the One Global Women Empowerment (OGWE) platform, an initiative by the B20 Women in Business Action Council (WiBAC) during the 2022 G20 Indonesian presidency, which promotes inclusive, resilient, and sustainable global economic growth through empowering women entrepreneurs and women in the workforce.
What’s next? Stay tuned for our third series on ESG soon – #3 Understanding the ‘G’ piece in ESG!
Funding Societies | Modalku strives to strike a balance between economic, environmental, and social factors in both our internal operations and our financing activities. We also want to support and guide SMEs that are making contributions in these areas, regardless of what stage they are in their sustainability journey.