The S in ESG

Forbes Magazine once stated that a company’s social responsibility is defined as the degree to which it prioritizes societal demands above financial objectives. Understanding the term “sustainability” can help businesses figure out what values they have as a company and how those values will be implemented in their supply chain. This also includes diversity, equity and inclusion factors. So, if you are a person and work for a company, then keep reading because we are talking about YOU!

Why is social sustainability a growing concern?

A key component of social sustainability is understanding how a company interacts with the people and environment around it. Companies must strive to maintain positive relationships with their customers, employees, suppliers, and other stakeholders in order to remain competitive while being responsible to the people it serves. Furthermore, they must ensure that their operations are not polluting the local environment or taking advantage of vulnerable populations.

Companies are made of people. They are at the heart of every business and their well-being is essential for a healthy, productive workplace. Companies need to ensure that their employees are treated fairly and provided with the necessary resources to do their job effectively. This includes investing in skills training, providing fair wages, health benefits, and other forms of support. Moreover, companies must also take into consideration how their operations impact the local communities in which they operate.

What is the social aspect of sustainable development?

Human capital is key to sustainable development. With the right investments in people, societies can achieve social inclusion and reduce poverty while promoting economic growth and environmental protection. Social sustainability requires a holistic approach that takes into account the needs of all stakeholders: governments, businesses, community groups, individuals, and other relevant actors. Sustainable development also requires strong governance systems that ensure accountable decision-making and transparent resource management. In order to achieve social sustainability, a balance must be struck between protecting the environment and human rights while promoting economic growth. This requires collaboration among all stakeholders in order to identify constraints and opportunities that affect sustainable development outcomes.

In addition, it is essential to address the underlying social issues that hinder sustainable development. These include:

  1. Improving access to education, health services and other social amenities.
  2. Empowering women and disadvantaged groups by increasing their access to resources and decision-making power in order to ensure their rights are respected.
  3. Encouraging fair labor practices with adequate wages, safe working conditions and non-discrimination at the workplace.
  4. Promoting effective and accountable governance systems that are able to address social issues in a just and timely manner.
  5. Reducing inequality within the society by addressing disparities in access to resources, income, and opportunities for social mobility.
  6. Strengthening civil society organizations so they can effectively engage with decision-makers to ensure that the interests of vulnerable populations are represented and protected.

What is social license?

According to webster’s, a social license is the broad public acceptance of an enterprise or activity as being necessary and socially beneficial. In essence, it is a grant from society that gives a company permission to operate in their local environment. It’s not given by any one individual or institution – instead, it is created through collective agreement based on shared values and interests. But this relationship has typically been exploited by corporations with devastating effects on the local communities they “promised” to protect..

A social license is often seen in the context of natural resource extraction such as mining, forestry and oil & gas development where companies must gain permission from affected people and their communities to move forward with projects. Companies that do not have a social license can experience delays or project abandonment.

The concept of a social license has grown out of global trends towards greater public involvement in decisions that affect community wellbeing. Stakeholders in a variety of sectors, including renewable energy and tourism, are increasingly expected to incorporate public opinion into their processes. Companies need to be aware of the needs and interests of local communities, as well as global trends if they want to remain viable, competitive and sustainable. After all, with the advent of social media, it is increasing difficult to hide wrong doings.

Social responsibility vs social license

If these two terms seem confusing, you are not alone. They have many parallels. But their differences might be explained by their distinct goals. Social responsibility seeks to do the “right thing”, which includes ethical and legal obligations. On the other hand, a social license is about gaining stakeholders’ trust by demonstrating that the company will consider their interests in decision making.

Therefore, companies who hope to achieve a social license must go beyond simply following the law. Companies must be proactive in seeking out the wants, needs and concerns of the local community, meeting their expectations and exceeding them – to demonstrate that the company is willing to go above and beyond for them. Simple!

What are the social risks of a company’s supply chain?

When it comes to a company’s supply chain, there are various social risks that need to be taken into consideration. These include human rights violations, labor exploitation and forced labor, child labor, corrupt practices, local environmental pollution and degradation, health and safety risks for workers, lack of transparency in reporting social issues in the supply chain, inadequate wages for workers, gender inequality in the workplace, discrimination based on ethnicity, and lack of access to safe working conditions.

The consequences of these social risks in the supply chain can be serious, with negative impacts on both the company and its customers. For example, a company may face reputational damage if allegations of human rights violations or labor exploitation arise; this could lead to boycotts from consumers, as well as other legal, financial and governmental repercussions. Additionally, if a company is not transparent in its reporting of social issues in the supply chain, it could face additional trust and credibility problems with suppliers and customers.

How do you manage the social risks in the supply chain?

Obviously, social risks in the supply chain present real concerns for business owners and managers who often have little or no control over the suppliers in their supply chains. In order to mitigate these risks, companies must take proactive steps to ensure their operations are socially responsible; this includes establishing an effective process for monitoring and reporting social issues in the supply chain, setting up a system for responding to incidents of human rights violations or labor exploitation, and implementing fair labor practices throughout the organization. Additionally, companies should strive to build strong relationships with all participants in their supply chain, ensuring that everyone is being treated fairly and respectfully. The important part is to strengthen your internal policies and let your partners know so they can implement the same processes. Keep the conversation open and replace questionable companies with sustainable suppliers as soon as possible.

What are 5 principles of social sustainability?

There are many principles of social responsibility which include:

1. Respect for Human Rights: Respect the rights of others and ensure that all people, regardless of race, gender, sexual orientation or other differences are treated with dignity and respect.

2. Access to Quality Education: Ensure everyone has access to quality education. This includes creating educational opportunities for everyone in the community as well as ensuring that those who take advantage of those opportunities are able to reach their full potential.

3. Participation in Decision Making: Ensure all members of the community have an opportunity to participate in decision-making processes that affect them. This includes being consulted on policy decisions, having a say in economic and social development initiatives, and being involved in designing projects or services.

4. Economic Development: Work towards a socially just and sustainable economy by increasing economic opportunities, encouraging responsible investment, and addressing inequality.

5. Environmental Protection: Promote renewable energy sources and reduce environmental degradation from unsustainable practices and overconsumption of resources. This also includes protecting land rights for communities and indigenous peoples. Social sustainability should take into account the broader environment, including climate change, air and water quality, and wildlife conservation.

These five principles of social sustainability provide a framework for communities and stakeholders to identify their own needs and how to meet them in ways that ensure the long-term well-being of everyone involved. By taking these steps towards social sustainability, communities and stakeholders can foster an equitable, inclusive and prosperous society. In turn this will lead to a better standard of living for all, more secure communities and less refugee situations.

A man returns home after work through a slum with tall towers of business in the background representing inequity, a cornerstone of ESG

What are the social impacts on ESG?

The social impacts are just as important as the environmental and economic impacts when it comes to ESG. Companies must consider the effects their actions have on society, such as job creation or human rights issues, in order to be successful and ensure long-term sustainability. Negative social impacts can arise from poor labor practices, discrimination, corruption and inequality. Understanding these issues is critical for companies striving for success in the ESG world. By taking a proactive approach to addressing these issues and engaging with stakeholders, companies can improve their reputation, reduce risk and create value in the long-term.

Common Supply Chain Issues

Some common supply chain issues include interruption of flow of materials including raw materials or components, unplanned shutdowns, and lack of worker training. The issue with these supply chain challenges is that they can cause a company to lose revenue and customers while also increasing the cost of goods sold (COGS). For example, if there’s an interruption in flow or components needed for production, then this would lead to a delay in shipping which affects the assembly schedule that prevents the goods from getting market on time.

Social Impact on Delivery and Customer Satisfaction

Then there is the impact on delivery times with knock-on effects to customer satisfaction. If demand is too strong and supply cannot meet it, then customer satisfaction will be hurt because of a lack in availability.

There are many challenges that need to be overcome for companies to maintain social responsibility while at the same time improve operational efficiency and service quality. Being able to balance these often competing factors requires an awareness on value chains across multiple channels.

Financial challenges can have an impact upon operational efficiency as there is less money available to reinvest into company infrastructure…

How Poor Financial Management Affects the Chain

Poor financial management of the supplier can lead to an inability to supply the end customer with the right products at the right time. This can be due to an inability to pay suppliers which causes a delay in deliveries. Or perhaps, not having enough capital for necessary investments that are required for growth and development of new services. Financial challenges can have an impact upon operational efficiency as there is less money available to reinvest into company infrastructure such as IT.

How does loss of social license hurt your reputation?

If you think back to school days, when someone acted in a way that was viewed as wrong or not socially acceptable, it wasn’t just the person who was being punished. Everyone involved — parents included — felt the embarrassment of having their reputation tarnished by association.

The same is true when an organization loses its social license; everyone associated with it feels the impact to their reputation, regardless of their involvement in the incident. The organization’s reputation may be tarnished, and it is unlikely that customers will want to work with them. People who previously admired the company may no longer trust it and could even become vocal critics. Negative publicity can damage an organization’s relationships with stakeholders, including governments and communities, making it difficult to secure future investments. And with the advent of social media, it may become an event that renders a company unsustainable.

What About a Material Cost Increase in the Chain?

An increase in the cost of materials will force companies to change their suppliers last minute. This will also affect the cost of goods and services for consumers. Often, companies are required to obtain certification from their suppliers in order to maintain a sustainable supply chain. This is done through auditing systems that will reduce risk and increase transparency between all parties involved, including consumers.

What are social concerns for private SMBs?

While publicly traded companies are required by law to be transparent, small and medium enterprises are not. As a result, they tend to have less accountability and oversight when it comes to social issues. This lack of transparency can be problematic in areas such as labor practices, environmental protection, and customer service standards. Furthermore, without the resources to adequately research best practices or invest in eco-friendly initiatives, SMBs may be more likely to engage in practices that are not socially responsible. But that is changing.

For the first time in history, the consumer is using their purchasing power and social media to expose companies who are bending the rules. To avoid a PR nightmare and be sustainable, private SMBs should strive to become more transparent and accountable by developing comprehensive policies on social issues, investing in responsible practices, and fostering an open dialogue with customers and other stakeholders. Doing so can help them build trust within their local communities while showing commitment to corporate social responsibility.

You can also focus on working with suppliers who are transparent about their processes and can demonstrate that they are following best practices. The supplier has a role in the product’s creation, so you should work with them to ensure your business is creating sustainable products. Taking an active role in managing social responsibility while still being profitable is what will make you sustainable for the future. While it may not be easy for smaller companies to find the resources to be socially responsible, it is important for them to do so.

What are ESG Frameworks?

The ESG Frameworks document is a helpful starting point for any company that wants to incorporate sustainable business practices into their operations. It will help you identify the areas of your business in which you can adopt environmental best practices and provide guidance on how to do so. In addition, it provides information about what qualifies as an “ESG” practice and why they are important for building a sustainable model. We hope this article has been informative and given you some ideas on where to start with your own sustainability efforts!

Terms and Definitions

  • Socially Responsible Investors (also known as SRI) are investors who consider both financial return and social/environmental well-being when making an investment decision.
  • Climate Change is a long-term shift in weather patterns caused by increased levels of atmospheric carbon dioxide due to human activities such as burning fossil fuels and deforestation.
  • Governance Criteria are criteria used to evaluate the ethical, environmental, and social impact of companies, including how they treat their employees, stakeholders and the environment.
  • Environmental Criteria refer to factors that measure the environmental impact of investments, such as a company’s emissions or sustainability ratings from third-party organizations.
  • Executive compensation is the total amount of pay and benefits, including salary, bonuses, incentives, and equity-based awards, provided to executives in exchange for their services to a company.
  • Energy efficiency is the process of using fewer energy resources (such as electricity or fuel) to achieve a specific goal while maintaining the same or better level of service.
  • Analysis is an iterative procedure of careful examination and evaluation of data or information in order to draw valid conclusions or develop practical solutions.
  • Integration refers to the act of combining multiple components into a single system with a unified purpose, often through the use of technology.
  • The global economy is an interconnected web of economic activities that occur between countries and across continents and oceans, resulting in a complex network of exchanges and transactions taking place within different markets and regulatory bodies.
  • Non-financial considerations refer to matters such as ethics, corporate culture, social responsibility, employee satisfaction, customer relationships, public reputation etc., which are important when making business decisions but do not have an immediate monetary value.

We also recommend reading…

What are ESG Certifications?

Caveats and Disclaimers

We have covered many topics in this article and want to be clear that any reference to, or mention of B corps, socially responsible, factors, criteria, sustainable, funds, considerations, strategies, research, strategy, accounting transparency, ethical, indexes, professionals, environmental concerns, metrics, processes, supply chain, decision making process, own consumer protection, mission related, central factors, screen, framework, social and governance employee relations, company’s carbon footprint, issues, socially responsible, social criteria, governance issues, local communities, millennial investors or scores in the content of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading.

Terms and Definitions

Financial Performance: The financial performance of a company is the overall financial standing and economic health of an organization, based on quantitative measures such as profitability, liquidity, solvency, and capitalization. It can also include qualitative elements such as management efficiency and strategic positioning in the marketplace.

Mutual Funds: Mutual funds are investment vehicles that pool money from various investors to purchase stocks, bonds, or other investments in order to achieve a desired return. They are professionally managed by fund managers whose job is to research and select investments with an aim towards maximizing returns for investors over time.

Corporate Governance: Corporate governance is the process of setting the rules and regulations for how the business is run and ensuring that those rules are implemented and adhered to by all stakeholders in the organization. It includes such elements as board composition, executive compensation, investor rights, corporate culture, transparency and accountability mechanisms.

Risks: Risks refer to potential losses resulting from unfavorable events such as market downturns or catastrophic events like natural disasters or political instability which can have a negative impact on a company’s operations or financial results. Risk management involves understanding potential risks and developing strategies to mitigate them where possible.

Institutional Investors: Institutional investors are large organizations that manage investments on behalf of their clients including pension funds, mutual funds, insurance companies or other professional investment funds. They typically have high levels of assets under management compared to individual private investors and make up a significant portion of the market capitalization of public companies around the world.

Impact: Impact investing refers to investing with specific objectives beyond merely achieving positive financial returns but also taking into account social or environmental impact considerations when evaluating investment opportunities in order to generate greater good for society as well as strong financial returns over time.

Socially Responsible Investing (SRI): Socially responsible investing (SRI) involves making investment decisions that take into account not only the traditional financial performance metrics but also ethical criteria like human rights issues or environmental sustainability practices when making decisions about where to invest capital resources in order to create both positive social change while still achieving competitive risk-adjusted returns on investments made over time.

Evaluation of Companies: Evaluation of companies involves closely analyzing a company’s financial statements, management performance and operational efficiency to assess the health of its business operations. It also includes assessing the company’s future prospects and its abilities to meet the changing needs of shareholders, customers and other stakeholders.

Waste Management: Waste management refers to the collection, transportation, treatment and disposal of solid waste materials in a safe, responsible and effective manner. It is a complex process that involves sorting, recycling and disposing of various types of waste products including biodegradable waste materials like paper, cardboard, plastic and organic materials as well as non-biodegradable materials such as metals, glass and electronic equipment.

Brokerage Firms: A brokerage firm is an organization that facilitates the buying and selling of securities such as stocks, bonds, commodities and derivatives for clients in return for a commission or fee. They often provide advice on investment opportunities based on market analysis, research data or specialized information they possess.

Socially Conscious Investing: Socially conscious investing (also known as impact investing) is an umbrella term that encompasses investments made with either environmental or social goals in mind (or both). Examples include green energy projects or funding charities devoted to poverty alleviation or education access for vulnerable populations

Portfolios: A portfolio is a collection of investments held by an individual investor or financial institution which may include stocks, bonds, mutual funds, real estate investment trusts (REITs) and more. The purpose of creating a portfolio is to diversify one’s investments so that their risk is spread out across multiple asset classes while still trying to achieve their desired returns over time.

Capital Markets: Capital markets refer to those places where large sums of money are raised through capital transactions such as issuing equity (stocks) or debt (bonds). These markets facilitate growth by providing financing for businesses seeking capital while offering investors opportunities to grow their money with higher yields than bank deposits or money market accounts can offer them.

Author Bio

Research & Curation

Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for professionals focusing on ESG principles. Their primary goal is to provide resources to help middle market companies, SMEs and SMBs transition to a more sustainable future.