The S in ESG: More important now than ever before


The S in ESG: More important now than ever before


Published Date: 2021-07-19 | Source: INCE|Community | Author: Cuma Dube | The ESG Guy

The S in ESG: More important now than ever before

The impact of companies on the broader social issues within a society is often perceived to be very difficult to articulate, let alone quantify. How those social issues can impact a company is quite clear for us all, as we saw this past week with the protests in KwaZulu-Natal and Gauteng.

Investors have long grappled with how social investment criteria should be developed and measured. "Is it an opportunity or a liability?" (Bloomberg, 2020)? Do we need to reimagine all of the business rulebooks or reinterpret them? How can companies make wise social investments and still make an impact? Are these things mutually exclusive?

The social issues that plague our societies are deep and complex. They are as difficult to make sense of for the government as they are for companies operating in our communities. There is no silver bullet, and they require a multistakeholder approach. What they didn't need are instigators and criminal elements with narrow political ends to exploit them - as it seems was the case this past week in South Africa.

For businesses operating in South Africa, an investment in understanding how the "S" indicators impact their businesses and how to manage them is a worthwhile pursuit. What the "S" indicators are for a business, and their materiality may differ from business to business. But it may be useful to explore how the integration of social indicators (like community relations) can be improved. If not to prevent the collapse of our communities, and ultimately the businesses that operate within them, but because social issues create key risks for companies and will become increasingly relevant to strategic planning, operations and investment decision-making moving forward.

In a white paper published in May of this year, the ESG Working Group aimed to debunk five common myths about the "S" in ESG and demonstrate why it is necessary to have more sophisticated social performance assessments. The ESG Working Group is a non-profit partnership between the Thomson Reuters Foundation, Refinitiv, International Sustainable Finance Centre, White & Case, Eco-Age, The Mekong Club, and the Principles of Responsible Investment (PRI) as an observer participant.

The five common myths included;
Social performance is less financially material
Knowing how and where to start assessing social performance is challenging
Social indicators are hard to measure
Qualitative surveys are the best method for tackling social issues, and
Integrating social metrics is only relevant for impact investors.

In reality;
Social issues pose significant financial risks to all businesses, investors and their beneficiaries.
Existing resources clarify what social indicators are material to your business and your investments.
Using the above resources to identify social indicators must be followed up with collecting more relevant data.
Qualitative approaches must be supported by data-driven elements. These encourage more meaningful engagements around what social investments to make and their impacts.
Social indicator integration supports the development of more resilient businesses and stable communities.

What has become clear this past week, is that the investment community and the companies they invest in must be proactive and engage fully in integrating social criteria. Robust social performance assessments are needed to meet the challenge of socio-economic inequality (one of the four overarching themes of social indicators identified by the ESG Working Group) halfway in the communities they operate in.

While the protests may have been triggered by the arrest of former President Jacob Zuma, what drove a large part of their spread and intensity in KZN and Gauteng was the opportunity to get something out of a deal that is yet to benefit them. Frustration with not having an "equality of opportunity" nor the means to pursue it.

It may be easy to see the events of the past week as just wanton criminality, but that won't help us find a sustainable solution. It wouldn't be the whole story either. The link between stable communities and good business is well established. The social performance of businesses in these communities must cover proactive engagement, advocacy and integration.

It's in the interests of businesses to have strong and meaningful relationships with communities. It may be what keeps the carnage at bay. For example, at Maponya Mall in Soweto where the community supported law enforcement, and everywhere else where communities had a sense of ownership over their assets and economic infrastructure.


Chris Moodley 1 week ago

I addition to the 'S' both the E and G aspects have been highlighted. Let me commence with the Governance aspect: Ordinary salaried staff began to stand up for their employers to defend their companies. These employees are considered dispensable in the normal course of business. I.e when there is a downturn in the economy they are the first targets during Restructuring, with the prime aim of protecting the shareholders' interest which shareholder is perhaps living safely away from the trauma plaguing the employee. If companies take a decision to award shares to employees can one imagine how much more commitment to protect their employment since they become co-owners of the business. Staff being at the coal-face of the business understand the challenges faced by the community and can come up with ideas to solve those problems. Strategic planning involves top management and consultants but not the rank and file of employees. Management will also be put on their toes when dealing with staff as they are dealing with owners of the business. Staff are also in a position to regulate the remuneration and insane bonuses paid to executives. On the Environmental side - they were involved in the clean up after the looting and trashing. I honestly believe that they would want to keep the surrounding of where they live and ''ówn' businesses clean.

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