Expanding the Narrative: Addressing Overlooked Social Factors in ESG for Responsible Business
As we gear up to attend Reuters’ Responsible Business USA 2023 this week, we’ve been thinking about how the traditional narrative surrounding Environmental, Social, and Governance (ESG) factors are still holding businesses back. Although ESG factors have gained momentum due to regulatory changes and stakeholder pressure, the conversation around social responsibility is often limited to issues such as diversity and inclusion, fair labor practices, and employee satisfaction. However, there are other crucial social factors that are often overlooked. Let’s briefly take a closer look at three examples of social factors in ESG that contradict the dominant narrative and challenge assumptions about what constitutes social responsibility.
High employee retention rates don't always equal a positive culture.
Firstly, high employee retention rates do not necessarily mean you have a positive company culture. While high retention rates may indicate a healthy workplace culture, it could also be due to high barriers to entry, a lack of growth opportunities, or limited job mobility rather than a positive sign. Ensure that you have a nuanced understanding of the factors impacting high retention rates by comparing your longitudinal retention rates to industry benchmarks to determine whether your company is an outlier, then analyze that information against internal data on promotions, transfers, and training opportunities, as well as feedback from regular employee satisfaction surveys. Prioritize addressing it when such analyses indicate high retention rates are a negative issue.
Offering mentorship, leadership training, and skills training can help ensure that you help employees develop and advance in their careers within your company, as well as encourage employee mobility and create pathways for employees to advance their careers outside of your company if they choose to do so. These can be particularly effective approaches for simultaneously addressing systemic disadvantages that exist for LGBT+, female, and BIPOC employees, particularly if you have an intersectional understanding of such disadvantages. Further, these strategies all promote equality and create opportunities for advancement, helping your company contribute to reducing income inequality — a significant social concern among workers and the public alike.
Community impact-driven CSR initiatives don't always have a positive impact.
In addition to addressing employee retention rates, companies must also go beyond superficial community engagement to build genuine relationships with stakeholders. Although most companies prioritize community impact as part of their ESG initiatives, many also limit their local ESG-supportive corporate social responsibility (CSR) programs to philanthropic efforts or low-impact, “out-of-the-box” community outreach programs. This approach can overlook the negative impact that you might have on communities in your backyard(s), such as inadvertently promoting gentrification, hiring locally only for low-wage labor, or contributing to additional waste or secondary emissions that exacerbate local economic inequality or environmental degradation.
To avoid these negative impacts and build genuine relationships with internal and external stakeholders, companies should collaborate with community-led efforts that align with the company’s environmental and social targets. This could mean following a grassroots organization’s lead when it comes to embedding circular approaches in your local operations, local energy conservation, natural resource management, or even teaming up with local advocates to promote affordable housing policies. It also means developing long-term relationships with community-led initiatives and adapting impact frameworks to match stated community needs. This allows companies to meaningfully reduce their environmental impact and contribute to a more sustainable future for the local community, integrating the environmental and social factors. Conducting social impact assessments and implementing social accounting practices that work at both the local community level, and at the more common level of operations and supply chains will also help identify areas for improvement and potential risks to a greater array of stakeholders.
Superficial Stakeholder engagement is not enough.
Finally, companies must ensure that their stakeholder engagement efforts are not superficial or tokenistic. Although many companies tout their stakeholder engagement efforts as evidence of their commitment to social responsibility, these efforts can sometimes be shallow and perfunctory, and may not result in meaningful engagement or dialogue with stakeholders. To ensure meaningful stakeholder engagement, companies must get rigorous and imaginative in building genuine relationships with stakeholders. This can involve any number of tactics, including:
Conducting surveys or focus groups to gather stakeholder feedback and find mission alignment
Hosting town hall meetings or other events to foster dialogue and collaboration, then publicly reporting on changes that arise from those meetings
Engaging stakeholders in decision-making processes
Providing transparency and regular updates on the company’s ESG initiatives and progress
Co-creating impact goals and targets with community-led groups and stakeholders to ensure strategies work toward meeting real community needs
By incorporating these tactics into your stakeholder engagement efforts, you can build genuine relationships with stakeholders and demonstrate your commitment to social responsibility while working towards ESG maturity in innovative ways. But first, the conversation around social responsibility needs to expand beyond its traditional narrative, including the notion that measuring and reporting on social factors is too challenging to go beyond retention rates, DEI, gender parity, and other more easily quantifiable domains.
In our next post, we’ll dive into some of the ways that companies can go beyond DEI and more traditional social factors to begin to build a next-level social impact assessment and accounting approach.