It’s now or never to accelerate social within ESG January 2023

Over the past two decades, a profound trend has emerged in corporate sustainability that ranges from mandates that require a voluntary commitment in sustainable activities to building requirements due to both regulatory pressures and stakeholder expectations. This has led organisations to engage in sustainability strategies and also disclose their environmental, social and governance (ESG) information.

ESG has gained much traction and sustainability is now seen as a key business driver. With the increasing demand of transparency in the global supply chains because of regular and intense coverage by social media, regulatory requirements, and NGOs who act as watchdogs for the society, this calls for more efforts in historically lagging social factors of ESG.

This swing has spurred a stronger demand for the organizations to re-think how to address societal challenges and issues through their supply chain, generate transparency around non-financial parameters, including social factors and measure it for their investors and shareholders to help them make informed decisions.

Bloomberg Intelligence recently reported that the ESG-focused portfolios manage close to $40 trillion in 2021 and it’s expected to increase by 30% by 2025.”

With these changing landscape and requirements, where should organisations start their social journey of ESG?

1. ESG as a strategy for social aspects

The fundamental step for organisations is to move from a “tick-box” culture to a value-based culture to implement ESG. Organisations should consider looking at ESG as a strategy and not just as a compliance activity.

To embrace ESG within the organisations, it can be viewed initially from a compliance perspective to manage reputational risks and overtime they need to transform these efforts into social (and environmental) strategies for long term.

2. Components of social in ESG

Standard-setting organizations such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) and others have been built on the existing frameworks for social issues in ESG. It is all about addressing social issues, such as diversity and inclusion in the workforce and leadership, human rights or bringing wider community benefits.

The social dimension of sustainability concerns the impact that the organization has on the social systems within which it operates. Good news is these standards include elements of social value/wider community benefits that we are already working through PPN 06/20 in our procurement and supply chain efforts.

3. The significance of heatmapping for ESG

Heatmapping is the process to look at risks and opportunities in organisation and/or supply chain through the lens of sustainability in order to understand which are the most important for your organisation and therefore which one needs to be prioritised and addressed first.

Materiality signifies and reflects sustainability issues that are relevant for your supply chains, investors, stakeholder and decision makers. ESG issues can arise in any supply chain. For all organisations, it is imperative to ensure that there is a robust process to identify and manage issues in their supply chain and to have active governance, risk management, and remedial processes in place.

The materiality analysis is a strategic business tool which helps organisations in taking their first step and moving in the direction of ESG scores and particularly it’s a starting point to emphasis on certain social issues that hold consequential economic effects in organizations.

4. Supply Chain Transparency is the key to unlock ESG

Supply chain transparency requires organisations to know what is happening upstream in the supply chain and prioritise their social and environmental risks and opportunities, and assist them to abide to ever-increasing new laws pertaining to transparency. Large organisations – public or private, which often have multiple, complex and tangled global supply chains are at particular risk.

Most organisations typically only know their first-tier suppliers. Critical information to manage social and environmental risks and opportunities, and create positive impact lies in the lower sub-tier supply chains. Supply chain transparency will aid in lifting this visibility barrier to make an exponential impact and to unlock the ESG benefits.

5. Measurement of social in ESG

The social aspects of ESG have lagged behind due to numerous issues around the definition, scope and measurement as social is all about positive impact on people. Defining and quantifying the social aspects is an arduous task but it can make a huge difference by bringing a collaborative approach toward stakeholder engagement including suppliers.

By adopting a mechanism to measuring and reporting social aspects of ESG in procurement and supply chains provides a unique opportunity to help organisations to have a purpose-driven role in the society.

Food for thought – Social value strategy can provide your organisation with a toolkit to identify and implement value through procurement activities, mitigate risk, improve social performance and in long term help you to measure and report the social elements of ESG.

That’s a great start, but…

These efforts, unfortunately, won’t be enough. At the heart of ESG is reporting and standards – and that is a constantly changing landscape. To facilitate this and address ESG think about pulling the people and planet threads together and weave them into a strategic and holistic plan and upskill and educate your organisation – you will never go wrong!

REFERENCES:

Other references: Baid, V., & Jayaraman, V. (2022). Amplifying and promoting the “S” in ESG investing: the case for social responsibility in supply chain financing. Managerial Finance.