A Pause to Relook at the Relevance of ESG
The COVID-19 pandemic and subsequent measures to curb the spread of the virus forced people and their lives across the world to a standstill. This pause has given us an opportunity to observe and reflect on the cornerstones of growth, especially in the Global South where emerging markets are brimming with untapped potential. Greater interest has been brewing towards the concept of Environmental, Social and Governance (ESG) factors.
While the environmental factors have recently garnered attention, COVID-19 has challenged the essence and fragility of human wellbeing over the last year. With a focus on people and social aspects, the social factors must be looked at with a fresh perspective and appreciation for the gravity of the situation. At a basic level, social overlaps with environmental and governance, where each—directly and indirectly—impacts the other and the overall company score on ESG. Building upon the social factors enables wellbeing and fosters positive and inclusive culture in a responsible business.
Though nonfinancial, specific ESG exposures can have a material impact on an organization’s financial performance. Research also indicates a strong ESG proposition correlates with higher equity returns. Lastly, studies from during the COVID-19 pandemic suggest that companies that embrace and apply ESG factors are more risk resilient and more likely to succeed in the face of volatility.
Social factors encompass how a company treats people, focuses on employee relations and diversity and approach working conditions, local communities, and safety and conflict. Channeling efforts towards developing position statements on key aspects is the first step in the journey towards a socially sensitive and responsible business. So, how can companies strengthen their standing on the social factors for ESG?
To facilitate a seamless transition back to the workplace as restrictions are relaxed, company decisions must be driven by compassion and empathy. This is particularly true for the ongoing times burdened with great uncertainty amidst fears of recurring waves of the pandemic. Even though workplaces and markets have opened, employees should be able to make an informed choice with regards to working from the office or remotely, depending on their unique circumstances and limitations. It is important to embrace employees as humans and not cogs in the machine.
The holistic health and the overall wellbeing of employees are two of the most important pillars that require focus. Investors and companies that are allocating capital or assessing activities against the U.N. Sustainable Development Goals (SDGs) now treat mental health as a component of SDG 3 (Ensure healthy lives and promote well-being for all at all ages). Times of distress and transition call for additional mental health support and counselling. Investing with a focus on health and well-being isn’t just a boon for employees and corporate stakeholders, it benefits a business’s bottom line. Companies that prioritized health in past financial crises saw lower employee burnout, increased productivity and higher job satisfaction that allowed them to successfully weather the storm.
A survey conducted by the Harvard Business Review reveals that when employees did not feel valued or thought they did not belong in the workplace, they had lower workplace satisfaction, found little meaning in their work and looked to quit at the very first instance. Employees play a pivotal role in the trajectory of their organization and adequate investments must be made towards ensuring safe and conducive working conditions. This is especially true for the ongoing period as we are slowly building back better from the disastrous consequences of the pandemic. The impact of employee benefits is doubled when combined with an enabling environment that ensures equal opportunity.
Workplace diversity and inclusion is another social dimension that requires more attention. Heterosexuality isn’t a societal or workplace norm and opportunities need to be extended to the entire LGBTQIA+ spectrum to ensure a dynamic and truly vibrant workforce. Recruitment programs need to be modelled in a way to ensure candidates from diverse backgrounds get a fair chance. Systemic initiatives like mentorship programmes and assistance must be conceptualized by HR managers so that employees feel included and valued.
It is also important for firms to take proactive action to go the extra mile and ensure historically disadvantaged groups and cultural minorities have access to equal opportunity and representation. Corporations must advocate for human rights, opposing child labour and exploitative labour practices. Corporate purpose and business activities must consider the welfare of local communities. Corporations should strive to create synergy with the communities they occupy.
The breadth of data usage in business means that privacy and data compliance must also be a prevalent consideration across all corporate activities and sectors. Privacy and data management concerns surface in each of the core ESG pillars. Data privacy is a key social factor and companies must enact a zero-tolerance policy on data breaches.
While most companies debate and talk about these issues, the time has come to realize the implications of the intangible and put people at the centre stage. Business decisions that connect with the “greater good” strengthen the financial standing of the company. We need leadership to set standards and adhere to them in a bid to make a company and industry-wide impact. We must drive regenerative and inclusive growth where all of us thrive. With an impetus towards social factors, companies can hope to become a force for good and encourage growth. It is time for Indian companies to go beyond rule-based compliances and implement ESG goals with purpose and passion.
APCO Alumna Shambhavi Pant coauthored this piece.