What is the “S” in ESG?
Elif Öztürk // 21.08.2024
ESG (Environmental, Social, and Governance) criteria provide a framework for evaluating a company’s operations within the context of sustainability and corporate responsibility. Among these criteria, the “S” stands for the Social aspect, which addresses how a company manages its relationships with employees, the community, and other stakeholders. This includes critical areas such as workforce management, community engagement, respect for human rights, and supply chain practices. In this article, we will explore the importance of the social dimension within the corporate world and how it plays a role in shaping a company’s sustainability strategies.
The social pillar of ESG encompasses a company’s interactions with both internal and external stakeholders. This includes processes, policies, practices, and impacts related to employees, customers, investors, regulators, suppliers, and the communities in which the company operates. The social factors a company must consider can vary widely depending on its industry and operations.
The World Economic Forum has identified three key themes related to people within existing ESG reporting frameworks and standards: dignity and equality, health and well-being, and skills for the future. While environmental issues can vary significantly depending on business activities and environmental impact, social factors tend to be common across most companies. For example, health and safety, human capital management, and community engagement and service are likely to be relevant to almost any organization.
Health and safety issues involve ensuring working conditions are free from hazards that could jeopardize the health and lives of employees. This includes safety management plans, training, regular inspections, and compliance monitoring processes.
Human capital management covers topics such as diversity, equity, and inclusion, fair wages, employee retention, career development, and overall health and well-being. Additionally, supply chain management addresses a company’s relationships with suppliers and contractors, considering the social and governance impacts of these relationships. For instance, a company based in one country may significantly influence the working conditions and wages of workers located thousands of miles away. Social aspects of the supply chain include human rights issues such as child labor, modern slavery, wages, and working conditions.
Even companies with less complex supply chains should consider the social policies and practices of their suppliers when making procurement decisions to avoid reputational risks and ensure ethical practices. In this context, how your company manages its relationships with stakeholders—employees, customers, suppliers, partners, and communities—is of paramount importance.
In light of this information, assessing the social dimension of ESG requires a strategic focus on how your company fulfills its social responsibilities and the steps it takes in this regard.
