IMHO: ESG - where is the love for the ‘S’?

Environmental, social and governance (ESG) non-financial factors will be on the agenda at every board table – or certainly should be. So far this has led to a strong focus on the E and the G. Businesses have justifiably been focused on issues related to sustainability and climate change in the last few years. However, the ‘S’ isn’t getting much love.  

Social justice and social determinants of health need to be given equal prominence. It should go without saying that these are actually intrinsically tied to the E and the G, and are integral to good business practice. Investors and stakeholders are increasingly scrutinising and challenging businesses on areas including product safety and quality, supply chain integrity, staff safety, equity, diversity in the boardroom and workforce, and meaningful community involvement.

While social impact is a commonly-used term, meaningful activity and reporting is advancing more slowly. There is work going on locally and internationally to develop frameworks to measure social impact.  A good international example is Harvard Business School’s work on Impact-Weighted-Accounts. However, there is no agreement on standards as there is in environmental reporting, and a lack of data. It remains a contentious issue whether monetary value can be put on social impact. There is validity to all these arguments.

The EU is currently delaying introduction of the social parts of its taxonomy, a classification system establishing a list of environmentally sustainable economic activities. This is apparently because of a perceived level of complexity compared with environmental and climate reporting. Measuring carbon emissions is simpler than measuring the social justice elements of affordable housing or exclusion from the finance system. 

Part of the reason for less focus on the S is that it is quite loosely defined and interpreted. It is harder to quantify the risk and the material impact of getting it wrong. Businesses are perhaps viewing it through the lens of risk avoidance and reputation management. We see this in important areas such as pay equity and having robust policies on modern slavery. The S could also be framed more progressively by developing strategy and policies to improve society. For example, incorporating it across human rights, supply chains (here and overseas), our workplaces and wider society.  

It is natural to gravitate to what can easily be measured and reported. New Zealand has introduced mandatory reporting on climate issues and these evolving standards aid our understanding of the impact businesses have on climate change and the environment.  Many companies report around the UN’s Sustainable Development Goals (SDGs) and use integrated reporting (including non-financial capitals). It’s easy to forget the SDGs were brought in as goals for countries, not companies, so will rarely be fit-for-purpose, particularly for the ‘S’ in ESG.

There are numerous ways to look at social impact.  In New Zealand we have unique touchpoints which can help us get things right. These include Te Tiriti o Waitangi, Te Ao Māori, the Government’s ‘Wellbeing Budgets’, Treasury’s Living Standards Framework and the work currently underway around sustainable finance and inclusivity in the financial system. 

Some of New Zealand’s most serious social issues have a material aspect to them and shouldn’t be ignored. These include issues such as the housing crisis, the cost to businesses of the inability to attract and retain talented workers, children not returning to school post-pandemic, and the dire state of New Zealand’s health services, including mental health where this is being felt markedly. These issues do matter and affect every organisation in New Zealand. They have been further exacerbated by the situation in Ukraine, compounding the post-Covid recovery.  

There are overlooked solutions. Community organisations can provide valuable learning around social impact measurement. They work at the coalface on entrenched social issues. Many are experts at quantifying and reporting on their social return on investment.

There is a big opportunity for businesses to approach this as strategically as they do all other parts of their operations. NGOs and business working together as equal partners can solve problems for both entities.

Some of the issues businesses grapple with are everyday reality for community organisations - diverse workforces and clients for a start. Some social issues could be tackled more meaningfully by focusing on diversity, equity and inclusion. This topic is often viewed solely by metrics on gender, ethnicity, sexuality or pay equity.

It’s vital we get these things right, but there are also other considerations we need to value.  As a nation we seem comfortable in wringing our hands about a skills shortage in the labour market, but overlook highly qualified people who are living with a disability.

We are guilty too of appointing people into roles then expecting them to represent all those of their ethnicity, gender or age group. We also don’t always look at the barriers that exclude large groups of employees or potential employees who are overlooked for roles. We know of the struggles some older people have to find work but don’t scrutinise the same challenges in reverse that lock younger people out.

Community engagement needs to be part of and aligned with business strategy. This often seems to be treated as an afterthought when looking at a business ecosystem. When participation and social justice are scoped at the outset, viewing stakeholders more widely, it allows the processes of strategic alignment, brand awareness, partnerships and collaboration to evolve. Addressing power imbalances and agreeing on objectives and outcome measures that have real impact is key to authentic engagement.

It would be valuable for businesses to get strategic on the ‘S’ and ensure it’s on the agenda and actioned at the board table, in equal measure to the E and G. 

About the author

Pru is based in Auckland, and is a director of Advocacy Answers, a consultancy focused on governance, strategy, leadership, not-for-profit management, and advocacy.

Pru works with businesses to deliver social change. She advises on how to build capacity and develop authentic partnerships that deliver measurable impact.

She is a champion of the for-purpose sector and has been honoured for her work as an Officer of the New Zealand Order of Merit (ONZM). Pru uses her expertise with local and international clients to successfully develop and implement innovative strategic solutions.

After an extensive career in senior executive roles within multinational healthcare organisations Pru moved to the not-for-profit sector. While CEO of Leukaemia & Blood Cancer New Zealand, Pru grew it from a fledgling organisation to a high-profile NGO generating over $70 million throughout her tenure.  

Pru is chair of Te Ira Kāwai, (Auckland Regional Biobank), chair of Grandparents Raising Grandchildren and a trustee of SkyCity Community Trust Auckland. Previous governance roles included chair of the international Lymphoma Coalition and trustee with RAW (Reclaim Another Woman).

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

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