The social factors of ESG have become more prominent. Here's what they involve and how companies can take tangible actions to address social issues in ESG programs. (Published: 04 Apr 2023 in https://www.techtarget.com)

Corporate reporting on environmental, social and governance issues can be used by various stakeholders -- including employees, investors, customers and others -- to assess the ESG-related risks and opportunities relevant to an organization. While environmental and governance factors are often at the forefront of ESG considerations, the social aspect is equally important.

Addressing the social factors of ESG is crucial to creating a sustainable and responsible organization. This involves actively working to improve diversity, equity and inclusion (DEI) within the company, as well as promoting ethical behavior and social responsibility in all operations. IT departments can play a significant role in this process by ensuring that technology is used ethically and responsibly, protecting sensitive data and promoting digital inclusion.

What does the 'S' in ESG involve?

ESG social factors include a company's treatment of employees, supply chain practices, community engagement and overall impact on society. ESG's social element is intertwined with the concept of corporate social responsibility (CSR), a self-regulating model for committing to business practices that will have a positive impact on society. Some of the components of a CSR strategy can be built into ESG metrics to track and report on an organization's performance on social issues.

The social aspect of ESG also aims to redress injustice in the environments in which companies operate. Today, companies are faced with a growing number of social justice issues that can drive business risk, including worker rights, gender and racial equality, child labor and environmental effects on people's health. The way companies operate can have a huge impact on these issues. As part of ESG initiatives, this can mean taking steps toward fair wages for all employees, including workers at supply chain partners, or adopting policies designed to reduce environmental damage in local communities.

This article is part of

ESG strategy and management: Complete guide for businesses

• Which also includes:
• 5 ESG benefits for businesses
• 8 top ESG reporting frameworks explained and compared
• 18 sustainability management software providers to consider

For example, sustainability expert and author Andrew Winston points to a broad range of companies that are raising wages for their lower-paid workers, including Walmart increasing pay for its store employees. Such moves also have economic benefits. "This more sustainable social side of rising wages for the middle class is driving a better economy," Winston said.

These are some of the issues commonly considered in ESG initiatives, including social factors.

Prominent social issues for organizations today

There are a variety of social issues that organizations can incorporate into their ESG programs. The following are some common examples:

• DEI.
• Fair pay, living wages and other labor practices.
• Workplace health and safety.
• Employee experience and engagement.
• Fair treatment of customers and suppliers.
• Oversight of practices at supply chain partners.
• Responsible sourcing of supplies and materials.
• Community engagement and involvement.
• Charitable donations and funding of social programs.
• Support for human rights and international labor standards.

Why ESG social factors have become more relevant and important

The ESG movement evolved from socially responsible and sustainable investing practices that first... in the 1970s and became more widespread during the 1990s and early 2000s. In many cases, ESG investing focused mostly on understanding the climate-related risks faced by companies. But since the start of the COVID-19 pandemic, the social factors of ESG have grown in prominence.