Breaking down ESG – Social strategy

To create a social policy within your ESG strategy, it is important to have an understanding of what the social element of ESG actually means. No, we’re not talking about the company having a great social media policy or arranging nights out (although this helps). It’s all about how the organisation impacts society and if this is in a positive or negative way.

At the heart of it, an ESG social policy is all about protecting people from the negative impacts of your business operation while creating as many positive experiences as possible.

Your social policy will impact different groups in different ways. From a staff perspective, it’s about the workforce, working conditions, training and development, and putting effective diversity, equity, and inclusivity policies at the centre of decision making. For supply chains, it is about ensuring protection of labour standards, responsible sourcing, and community relations. When it comes to your product itself, it looks at how it impacts society where it is consumed, whether the product is safe, if it conforms to standards, and if it is being sold in a responsible way to people who know how to use the product. And finally, for stakeholders, it’s about whether your social value puts a positive or negative figure on their own social value balance sheet.  

By working with employees, shareholders, and investors, a company can improve its social value and therefore encourage other companies connected to it to do the same.

Pillars of social responsibility

Social responsibility is usually divided into three separate pillars; Human Capital, Product Liability, and Stakeholder Opposition. These pillars cover a wide range of issues that should be addressed as part of your overall ESG strategy. 

Human capital

How a company treats its staff, suppliers, and customers is important for many reasons, and there is already a lot of legislation surrounding this. Having staff that understand your business, are happy, protected, and empowered, and are looked after in a safe working environment is crucial for a successful business. Involving employees in the process is a great way for those relationships to build, allow open and honest dialogue, and encourage discussions with employees in a less structured, rigid way. 

Employee relations, diversity, equity and inclusion

There are a lot more companies employing diverse workforces and working with them to help them grow as part of the business. More companies include diversity and inclusion training in their inductions. This is important because all employees should feel included, respected, and supported, no matter what their background. Not only will this create a better workplace, it will also breed creativity, and you will have access to a wider range of skills and knowledge. 

There are also government initiatives, such as the Disability Confident Scheme, so that anyone with a disability will get the help, training, and development in their employment that suits their needs. This also helps those who become disabled during their employment. But it doesn’t stop there. Businesses also need to look at any benefits or bonuses they provide their employees. These can include Parental or Sick leave or Share schemes, as well as group pensions, health benefits, and insurance. 

Working conditions

After the COVID-19 pandemic, more businesses were aware that flexibility and hybrid working for staff members was going to be an important part of their business strategy. It’s not only about having a working model that works for all employees. It’s about ensuring that wherever your employees are working is safe, they have the right equipment and tools, and their workload is manageable. Companies also need to look at the hours that people are working, ensure they have the right amount of breaks and rest periods in between shifts, and ensure that they are paid accordingly for the job they are doing.

Maintaining a safe and healthy working environment where all staff, contractors, and visitors can feel protected if something does happen requires a number of suitable processes and policies in place. These could be risk assessments for both internal and external service providers, regular assessments and check-ins with fully remote workers to ensure their setup is safe and comfortable, and ensuring that accidents and near-misses are documented and reported properly. 

Employee training and development

Training your employees when they first start will give them guidance as to how the business expects them to act, best practices, and new skills they can learn. Having the opportunity to get onto training courses will improve employee morale, they’ll feel more valued in the long run, and this in turn will help with productivity. 

Alongside this, employers that have development programmes, where staff are given goals and objectives in their role to help them succeed and develop, will also help with morale. Higher staff turnovers often happen because employees don’t feel appreciated or valued, and they don’t feel like they have the tools or skills to help them succeed. 

Third party/supply chain labour standards

You might not be able to tell a supplier how to handle their staff, but the suppliers you use and the supply chain you have will reflect on you. Having a larger supply chain can complicate it as there will be more outsourced resources that will be more complicated to keep track of. 

When selecting or reviewing a supplier, you may look at their track record with safe working conditions, and ensuring their policies for human rights and protecting workers’ rights are aligned with yours. It’s now fairly commonplace for larger organisations to have a Supplier Code of Conduct, which new third parties have to read, agree to, and sign before any contracts can be issued. 

Product liability

Companies should understand their product liability, how to mitigate risks, how to manage problems that may occur, and their responsibilities to customers. The specifics will vary depending on whether we’re talking about physical products, such as chemicals or machinery, or less tangible products, such as financial services or insurance. 

Product safety and quality 

Many products sold in the UK and EU will have to go through a series of tests to make sure that they are safe to use. As part of your ESG policy, you’ll need to make customers and investors aware of what you are doing to mitigate and manage the risks that may occur. One way of doing this is by reporting on the safety of your products and what quality control tests the business is doing, as well as making these reports accessible to investors and consumers.

Chemical safety

If your business works with chemicals in any capacity, you will need to be compliant with chemical and material reporting requirements. Tying in with the environmental aspect of your ESG policy, you may be asked to find other, more sustainable sources where possible. Any staff handling the chemicals must also have the required training and keep this updated as necessary.  

Financial products safety

If a business is selling or providing financial services, there are a whole host of requirements that they have to comply with in regards to how they sell their products and disclose information to customers. This includes how they advertise on social media and their website, and they have to provide certain information to investors. This is part of the Disclosure Regulation, an EU regulation that came into force in 2021 and should be part of a strong ESG policy for anyone in the finance sector. 

Privacy and data security

With cybercrime becoming more common, customers and investors are more interested than ever in how companies use their private data. There are more calls that companies are transparent with data use, allowing people to delete their data when requested, and that it is used ethically and not sold on to third parties without consent. GDPR (General Data Protection Regulation) is the main regulation that companies have to comply with. Consumers are more likely to work with companies that have a stringent privacy and data security policy and are actively talking about it on their website or in correspondence. 

Responsible investment

This ties back to the environmental aspect of your ESG policy. Responsible investment is looking at those opportunities that not only look after the business but also the environment, people in the business, or customers, therefore building a more sustainable future for the company. With political lobbying coming under scrutiny more and more, it’s important for an organisation to look at these investments carefully and see where their money is going. A business should look at ESG issues in full when deciding on the investments they want to make and speak to shareholders to ensure that all investments are sound.

Stakeholder opposition 

Stakeholders will be a large part of your ESG strategy, helping you to make decisions, and they will have a vested interest in the business and how it operates. However, there are going to be those who oppose certain parts of the ESG strategy, or the whole thing. These are issues that the business has to overcome to create an ESG policy that suits both the business and stakeholders. 

Controversial sourcing 

Some stakeholders might want a business to look at obtaining goods or sources from companies that are known for ethical, social, or environmental problems. These issues can range from human rights concerns and conflict materials (where minerals are sourced from regions with little to no human rights or in a conflict zone) to environmental impact. Companies should push back on controversial sourcing and look at how their ESG policy will maintain the trust of stakeholders and customers and uphold their values to instil trust with investors. 

Supply chain transparency

If some of your supply chain is in a country with cheaper labour, you may also be at risk of other issues like bribery and corruption, speed of delivery, environmental pollution, and the fact that their labour and working conditions might not be up to standard. Any of these risks can lead to negative media coverage, disruption in the supply chain, or loss of customers. Looking into the entire supply chain and their practices to see if they are going to help or hinder your business is an important part of your ESG strategy. Having more transparency in your supply chain allows you to address any ethical problems and mitigate these risks before they happen. 

Community relations

As part of its ESG strategy, a company should have interaction with the local community. This could be with charitable organisations, schools and colleges, or other businesses that they can partner with. Some pushback from stakeholders might be that it doesn’t help the company to be distracted from its core business model and that it doesn’t increase sales or engagement with the brand. 

The counter to this would be that having more community engagement does impact both the company and the community positively. It helps with customer satisfaction, employee engagement, morale, and brand loyalty among those in the local area. A charity committee in the company is a great way of keeping in touch with the community, as well as sponsoring certain events, providing products and services, or allowing staff to volunteer. 

Summary

When you step back and consider all of the aspects of a successful social value strategy, it is easy to get overwhelmed because of the wide range of issues and the sheer number of different workstreams to consider. But when a business has a strong social policy as part of their ESG strategy, they will not only help improve staff morale, productivity, and values but can also become a local community champion and be seen as a responsible organisation in the area, which will only improve investor and stakeholder relations.