The social pillar, or: I’d like to buy an “S” – and then solve the puzzle!

CPA Canada recently issued The Rise of the Social Pillar: An Introduction to the ‘S’ in ESG

As the website sums it up:

  • Stakeholders increasingly expect organizations to consider the impact of social matters on their business models, operations and across their value chains. Additionally, regulators and governments across the globe are looking at integrating social matters into policymaking and disclosure rules. The scope of social matters is broad and includes:
  • human rights
  • health and safety
  • employee engagement and satisfaction
  • Indigenous peoples and communities
  • diversity, equity, and inclusion
  • ethics and security

The publication expands:

  • With real-time access to information via social media platforms, discussion around social matters can have potentially significant financial and reputational repercussions for an organization. This possibility was highlighted in part by the global COVID-19 pandemic from increased awareness of the inequalities within our society – especially with respect to women and minority ethnic groups.
  • Further, we have witnessed several events in Canada and elsewhere that have shone a light on critically important systemic social issues that must be addressed. Many, if not most, of these issues are long-standing and deeply rooted issues, such as racism, diversity and inclusion, treatment and rights of Indigenous peoples, unfair labour practices, and workplace health and safety, which have a disproportionate impact on certain demographics…
  • Stakeholders, including investors, business leaders, employees, customers, government and civil society have an increased awareness of social matters and are calling for demonstrable corporate action with respect to many social matters. Failure to make these changes can have an impact on an organization’s financial performance, market value and public opinion.

Having said that, you might be forgiven for thinking that when the list of things on which at least someone is “calling for demonstrable corporate action” is so vast, not all of those calls are going to be equally well answered (let’s just hope any of them are). As we covered here, it’s easy to imagine scenarios in which the S (and G) elements of ESG fail to move ahead to the same extent as sustainability reporting, or in which ESG as a whole never realizes its potential, remaining “biased towards financial materiality rather than considering the reduction of harmful impacts on society and the environment.” After all, as one source speculated, “capitalism always finds a way to repackage an idea into a product that benefits the system.” A related issue is the apparent backlash against such matters (or, more accurately, against a cynically distorted version of them) in the political sphere, which some speculate will contribute to a Republican resurgence in upcoming US elections – whatever one’s personal view of the merits of the “S” movement may be, that would probably be enough to kick it to the sidelines for a generation.

Moving on, the publication provides a list of questions that organizations will need to address “to develop sound social practices”:

  • What social matters are most important to the organization, investors, and broader stakeholder groups (e.g., local communities in which they operate, global supply chains)?
  • Does the organization understand the social risks, uncertainties and opportunities in their markets and can it adjust its business model to address them?
  • How does the organization’s business model contribute to positive or negative outcomes for its customers and the communities in which it operates?
  • How does performance on social issues impact an organization’s financial results and access to capital?
  • Where does the organization stand on key social matters and what are its goals for achieving important social outcomes?

All important questions, and of course all highly complex ones, potentially lending themselves to a heavy dose of self-serving “virtue signaling.” Even if the pitfalls I mentioned above can be avoided, it’s highly questionable whether investors will generally prioritize such issues in an age where (say) immediate oil prices (and the resulting “pain at the pump,” to cite the phrase tossed around ad nauseum by the pandering Canadian media) occupy the public consciousness far more than the future horrors of climate change, and in which one’s assessment of sound social practices may largely come down to grading one set of “negative outcomes” over another (Neil Young received much positive attention for his recent stand, but it’s extremely questionable whether Spotify, which he famously boycotted, is truly a greater menace to society than Amazon, which he didn’t). Certainly, the vast corporate shunning of Russia is an encouraging current example to the contrary (we’ll discuss that one more next time), but given the extreme atrocity of what corporations are responding to there, and the accompanying substantial unanimity of political opinion and willpower, it may be an exception that proves the rule…

Anyway, the publication promises that “as the focus on ESG continues to evolve, CPA Canada will continue to explore this area and plan further research. This may include research on specific social matters, key performance indicators, and impact assessment tools and approaches to help inform decision-making, which will contribute to the long-term success and sustainability of organizations and better outcomes for society.” Well, we can all agree we could use some better outcomes…

The opinions expressed are solely those of the author

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