De-jargoned: The ‘S’ Pillar
Social – The ‘grassroots’ problem
The ‘S’ in ESG stands for social and takes into account the manner in which a company manages its stakeholders. That is, how does the company choose, interact and manage its relationships with its suppliers, vendors, distributors, customers, employees and society in general.
- Availability of structured social impact data at company level is very poor
- Events such as the COVID-19 pandemic and the Black Lives Matter movement have highlighted the significance social factors
- Investors look at factors such as the company’s hiring policies (diversity, equal pay), corporate social responsibility, impact on the society in general
Understanding with examples
A company that follows equal pay principles and promotes diversity and inclusion in its hiring will be able to attract and keep the best talent. This will result in a favorable risk score on the ‘Social’ factor of ESG. So will factors such as giving back to the community through corporate social responsibility programs, implementing strong health and safety measures for employees.
On the other hand, a company that is involved directly or indirectly in human rights violation such as employing children will have a very unfavorable social risk score.
This aspect of ESG does not have much structured or in-depth information and data available. However, recent events such as the COVID-19 pandemic and the Black Lives Matter movement have brought out the significance of the ‘social’ pillar of ESG.
Health concerns, social distancing measures and the way companies are dealing with the pandemic and its attendant economic stress with respect to their employees; how companies are promoting diversity and inclusion are all critical factors in assessing a company’s social risk.