What is the 'S' in ESG and why does it matter?

There has been a lot of talk in corporate circles about ESG. It’s a new strategy for organising business ethics in the areas of the Environmental, Social and Governance matters. And corporates love an acronym so the term ESG is on everyone’s lips. Companies across the UK are having to think about their stance on these issues and define their ESG strategy. It’s a good way for us to understand more about the company’s values in these three key areas.


The central core is the ‘S’ element that covers Social matters – in other words things that affect people, whether they are staff, customers, suppliers or investors. It is an opportunity to know more about how companies treat people, with welfare of staff (both physically and mentally) high on the list. Of course, the COVID pandemic has changed the way people are managed, especially those who are now working from home. Companies will also be scrutinised not only within their business but across their entire supply chain where instances of modern slavery might occur. Investors will be challenging companies to demonstrate that they have a good social track record and this will have an increasingly important impact on their appetite to invest. Some companies will find this harder to demonstrate and we foresee some long, hard re-thinking of established business models.


Unlike the ‘E’ pillar that looks into environmental issues such as climate change, carbon footprints and sustainability, the Social aspects are much harder to quantify and there are plenty of consultants now working hard to devise metrics that make is easier to track progress and to make relevant comparisons between organisations. There is no doubt that ethics, diversity, fairness and safety will feature in many Social key performance indicators (KPIs) as this year unfolds.


One metric that can be easily reported is the gender mix within organisations and there is a Project 30 already gaining momentum where companies are aiming to achieve 30% of women in their workforce and on their Boards. 30% is considered to be the point at which a minority group has a voice and so it will bring significant changes to the senior management landscape of many older generation institutions. Indeed, the smaller, newer businesses could gain significant competitive advantage in this regard as they are free from legacy structures and business approaches. And of course, the Green Revolution will create a host of diverse employment opportunities that are exciting not only for the planet but for all of us who inhabit it.


In a time when much of the news is dismal and worrying, the focus on ESG is a positive step and provides companies with an opportunity to really step up their game in these important areas.