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Social Sustainability - What is it and why is it important to business?

The ‘Social’ aspect of ESG is one of the least well defined and measured parts of corporate sustainability. This is due to both issues of scope – defining which stakeholders are impacted – and measuring outcomes and benefits.

So what do we mean when we say ‘social’?

The World Bank^ focuses on Social Sustainability and Inclusion when they define social development, looking at outcomes which promote inclusive and resilient societies, and which create opportunities for all. Of particular focus is giving people the agency and ability to influence their own lives.

The first six of ten principles of the UN Global Compact^ focus on the social dimension of corporate sustainability, with human and labour rights the key common denominators.

Using these guidelines as a rule of thumb, corporate social sustainability seems to be about identifying, measuring and managing impacts on people, which in turn gives corporations their ability to continue to operate profitably and productively.

As our understanding of a corporation’s impact gets ever wider, and stakeholder sets broaden, companies need to assess the impact on the people in their direct employ, in their supply chains, and also their end customers. This is similar to the evolution of environmental policies since the 1990s, which has moved from a focus on direct emissions to considering upstream supplier and downstream use, and end of life disposal of their products when determining a carbon footprint for Net Zero^.

Alana McPhee
Sustainable Product Group

United Nations Global Contact Priciples

Support and respect the protection of internationally proclaimed human rights
Businesses should ensure they are not complicit in human rights abuses
Uphold the freedom of association and the effective recognition of the right to collective bargaining
Uphold the elimination of all forms of forced and compusary labour
Uphold the effective abolition of child labour
Uphold the eliminitaion of discrimination in respect of employment and occupation
Support a precautionary approach to environment challenges
Undertake initiatives to promote greater environmental responsibility
Encourage the development and diffusion of environmentally friendly technologies
Work against corruption in all its formsincluding extortion and bribery

Social sustainability

As there are many overlaps between social sustainability and minimum standards that companies are legally obliged to meet to continue operating in their markets, a lot of social measurements focus on the inclusion of policies and procedures for companies – for example, do they have a diversity and inclusion policy, safety procedures and initiatives engaging the community? The danger here is that some businesses see compliance with these requirements as an added cost, without the attendant benefits, preferring instead to simply reach the minimum standards required to trade.

With all that said, what we do know is that the stock price of companies thought to have high social sustainability credentials outperformed^ in the initial months of the Covid-19 pandemic, and there are several factors which can lead to lasting outperformance in the long term, through three major avenues.

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  • Reduce negative shocks

    Firstly, a high degree of social sustainability reduces the risk of negative shocks^ and reputational risk. Several high profile cases have demonstrated that the ‘social inclusion’ element is far reaching and extends down a company’s supply chain, particularly for those that have lost their direct links to manufacturing and sourcing.

    The longer a company’s supply chain, the greater the risk of there being negative business practices taking place that can negatively impact the master brand – whether that’s dubious sources of raw materials, or unethical working practices like unfair pay or child labour.

  • Diversity drives performance

    Secondly, having a diverse workforce with remuneration and HR policies aligned with values of respect and inclusion reduces staff turnover, and increases and broadens the talent pool available for promotion. There are various studies which attest that higher diversity leads to better corporate performance, with McKinsey^ recently highlighting that this should be not only across gender, but also across broader aspects of diversity, with attention across all levels of management. McKinsey not only saw top quartile outperformance, but that the bottom quartile of firms in terms of diversity measurement underperformed as well.

    Listen to our recent podcast on diversity in the workplace, part of the What is Possible? series.

  • Supply chain innovation

    Finally, these benefits lead to other positive externalities such as increased security and innovation across the supply chain. Building greater understanding of, and cooperation with, supply chain counterparts can lead to companies benefitting from more innovation, as suppliers are more likely to share opportunities with customers they feel valued by, and think would return the favour. Unilever^, for example, has noted that most of their innovations have come from this source.

  • Where to start

    Given social sustainability is not as well defined as the ‘E’ or the ‘G’, it can be difficult for a company to know where to start. An important first step is to review existing policies and practices, but also to consider what measurements will determine their desired outcomes.

    For example, do you know the provenance of all your raw materials and the labour standards under which they were delivered? Has staff satisfaction increased? What of staff or supplier turnover and the related employment and procurement costs? What of your reputation with customers? What does it mean if you do not have or measure these data?

    For most businesses, people are the end users of their products. It therefore makes sense that putting people at the core of a company’s strategy creates a company that is truly sustainable in the long term.

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