Putting the ‘S’ in ESG: Why social disclosures matter

by Elliott Fudge

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Businesses are investing time, effort and money into disclosing and reporting on their ESG journeys. And while environmental and governance reporting is front and centre for many businesses, when it comes to social disclosures, it’s a different story.

Despite the Covid-19 pandemic and social movements demanding businesses go further in their efforts to create diverse, inclusive and supportive working environments, social reporting is sometimes seen as more of a box-ticking exercise than something material for businesses to integrate into their disclosures.

But regulators and investors are paying closer attention to businesses that aren’t accurately reporting on their social metrics. And organisations that continue to drag their heels when it comes to reporting on their social values risk missing out on talent and capital funding.

Defining the ‘S’

Neglected, perhaps, but social metrics for businesses are not new. Of the UN’s 17 Sustainable Development Goals (SDGs), almost two-thirds relate directly to, or are closely interlinked with, social purposes such as zero hunger and gender equality.

And these SDGs have been invigorated by the scrutiny placed on businesses since the pandemic. With workers working from home for extended periods of time during the pandemic, businesses were expected to raise their efforts to look after their employees’ wellbeing and prevent burnout.

And with social movements, such as Black Lives Matter, demanding organisations take stronger stances on issues of inclusivity, anti-racism and diversity, the pressure is building on businesses to improve their performance on social justice issues.

Yet a 2020 study by the Global Reporting Initiative and the Support The Goals initiative, which encourages organisations to adhere to the 17 SDGs, shows that although 83% of corporations state their support for the SDGs, only 40% set measurable commitments for how they will achieve them. Only 20.4% include evidence to support their positive claims.

So why the disparity?

Between a rock and a hard place

One of the key challenges many businesses are facing is how to define and report on social impact. A 2021 report by KPMG into reporting on social topics shows that inconsistency between measurement frameworks and a lack of global consensus on how businesses should drive social impact are hindering a more cohesive effort to improve. Without harmonised frameworks, benchmarks and regulations across key markets, there is a widespread perception that social impact and economic performance remain distinctly separate features of business operations.

But things are changing. ESG regulations are tightening, and regulators are paying close attention to organisations that are failing to accurately disclose how they are rising to the challenge. Businesses with low social standards, or poor social disclosures, also pose a serious risk to investors. When fashion retailer Boohoo was found using modern slavery in its production chains in July 2020, more than a billion pounds was wiped off its share prices, with the company now facing a US import ban.

Failing to improve and disclose social indicators doesn’t just leave businesses exposed to potentially breaching fast-moving ESG regulations. It also risks businesses being overlooked by investors wary of the risks posed by poor social performance.

Poor social reporting also poses a strategic problem. Millennials and Gen Z workers are set to make up a substantial proportion of the workforce by 2030. And with 64% of millennials reporting that they wouldn’t take a job if the employer didn’t have a strong Corporate Social Responsibility (CSR) policy, not communicating their social impact could mean that businesses will lose out in the war for talent.

Raising the standard

Although ESG compliance and reporting is fast-becoming a priority for large businesses, there’s still lots of room for improvement. Even for businesses with strong track records of diversity, equity and inclusion, resting on your laurels simply won’t cut it.

All businesses, whatever their social standards, need to transparently share their progress towards improving their performance on social issues. And not just once a year.  Consistent and coherent ongoing communications show that your organisation is looking to drive meaningful change, not just tick a box.

When it comes to ESG, standing still isn’t an option. Investors, regulators and consumers are looking to businesses to raise their game, and when it comes to sharing your journey, we can help. From annual reports to sustainability campaigns and ongoing communications, we can help you tell your ESG story.

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