Introduction
As environmental, social, and governance (ESG) investing
continues to soar—projected to rise 84% to $34 trillion by 2026, according to PwC—so too do the questions surrounding the true
impact and value of ESG strategies, particularly from consumers, private
companies and even political figures.
Yet, ESG-focused investors and companies remain
steadfast. " Belying questions of whether financial and ESG performance
might conflict, nine of 10 asset managers surveyed believe that integrating ESG
into their investment strategy will improve overall returns " PwC reports.
The Business Roundtable, representing 250 of the top U.S.
CEOs, echoes this sentiment. “Companies should serve not only their
shareholders, but also deliver value to their customers, invest in employees,
deal fairly with suppliers, and support the communities in which they operate,”
its Purpose of a Corporation states.
However, the "S" in ESG, representing a
company's social responsibility, remains unfairly scrutinised, as its
measurement and value are often subjective. Unlike the "E," which is
quantifiable through carbon emissions, energy consumption, and waste output, amongst
others —and guided by the International Financial Stability Board's
standardised climate-related reporting frameworks. The "G" is
generally regulated by strict reporting standards enforced by the regulators
and other authorities.
But when it comes to social impact, the lack of clear
reporting standards for the "S" gives companies greater flexibility
in how they report their contributions to society. While this freedom allows
for creative approaches, it also leaves companies vulnerable to criticism for
making unsubstantiated claims or focusing more on brand image than real change.
As a result, they risk losing the trust of both employees and consumers when
their actions fail to live up to their values.
Companies can significantly strengthen the "S"
in their ESG strategies through five transformative actions:
1. Clearly define your purpose and impact
through your business
Every company has the power to drive a more equitable
society by leveraging the products and services they already offer. Telco
companies are closing the broadband access divide. Banks and property
developers are addressing the homeownership gap. Healthcare is delivering
essential medical services to vulnerable communities in need.
Tech companies that support food banks are doing valuable
work. However, an even more powerful approach is to address the root cause by
helping individuals secure tech jobs through training. By empowering people
with the skills for higher-paying, more stable careers, we can reduce reliance
on food banks and create lasting economic mobility.
2. Understand and focus on the metrics
Peter Drucker's timeless principle, "What gets
measured, gets managed," has stood for over 70 years. In today's
data-driven world, the ability to collect and analyze information to guide business
operations and assess outcomes is not only more accessible but also expected.
However, measuring social good remains a challenging
endeavor, making it difficult to manage. Nonetheless, it is achievable when
companies take a structured approach—clearly defining objectives, setting
goals, tracking progress, and reporting on their social impact commitments.
For example, it’s not just about the amount of corporate
funding allocated; rather, it’s about the measurable societal
impact—specifically, the people and communities that are positively affected.
This becomes more manageable when nonprofit organizations embrace
return-on-investment (ROI) principles and offer transparency in their results,
enabling donor companies to meet their own ROI expectations.
3. Begin with your internal foundation – social
impact starts with your people
Establish clear and measurable DEI objectives, along with
employee engagement metrics, particularly for historically marginalized and
underrepresented groups. It is crucial to remain steadfast in pursuing DEI
initiatives, even amidst economic fluctuations.
Additionally, integrate Environmental, Social, and
Governance (ESG) efforts with corporate social responsibility (CSR) functions,
corporate giving, and employee volunteer programs. Too often, these areas
operate in silos, work at cross purposes, send conflicting messages, and waste
valuable resources. Leverage employee passion for your mission by offering
volunteer and giving opportunities that reinforce your ESG objectives, while setting
ambitious, measurable goals.
While the social value of DEI is widely discussed, the
business case is often overlooked. However, some organizations such as Wall
Street increasingly seeks partnerships with women- and minority-owned banks,
not solely for DEI purposes, but to enhance their ability to raise capital.
This shift highlights the growing recognition of the business benefits DEI can
provide.
4. Reach out and connect
Identify, engage, and prioritize partnerships with
corporate partners, vendors, and supply chain providers to collaboratively
achieve social good objectives, creating a powerful force-multiplier effect.
Leverage your purchasing power to encourage others to join in these efforts.
When companies focus on social-good initiatives aimed at
closing gender or racial disparities, they simultaneously open new market
opportunities. While the social benefits are often emphasized, the business
advantages are frequently overlooked.
For example, a leading financial institution actively
seeks business with minority securities dealers, not merely to advance DEI
objectives, but to tap into, serve, and capitalize on previously underserved
markets.
4. Extend partnerships
Nonprofits are uniquely positioned to help you achieve
measurable social goals. As frontline agents of social good, they are deeply
attuned to the immediate and evolving needs of communities.
While donating to large national and global nonprofits is
a reliable approach, supporting local community-based organizations—who are
closer to the ground and better informed about what works—can significantly
amplify the impact of your social investment.
Additionally, consider contributing to the development
and strengthening of a community nonprofit’s operational infrastructure. By
providing "unrestricted" funds, you empower these organizations to
allocate resources where they are most needed, allowing expert leaders to
decide how best to use your generosity.
Conclusion
By refining the "S" in ESG with a strategic
business mindset, you can help demonstrate that social good is not only a moral
imperative but also a sound business practice, one that benefits both investors
and the broader public.
All views and opinions expressed on this site are by the
author and do not represent any particular entity or organisation
