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Prediction 5: 2024 The Rise in Social ESG: A Major Trend

Discover 2024's Major Trend: The Rising Significance of Social ESG in Business Practices
Category
Reporting
Written by
Unmesh Sheth
Published on
January 14, 2024

Explore how Social ESG will transform businesses in 2024, emphasizing ethics, stakeholder engagement, and corporate social responsibility.

The Rise in Social ESG: A Major Trend in 2024

The business world has witnessed a significant shift towards incorporating environmental, social, and governance (ESG) practices into corporate operations.

There has been a lot of attention on the environment and how companies are governed when it comes to ESG. But now, a new trend is starting to take shape - the increase in importance of social factors in ESG.

In 2024, this aspect is expected to take center stage and revolutionize corporate procurement practices.

Reporting ESG metrics, Impact metrics and engaging stakeholders have become imperative for companies striving to demonstrate their commitment to sustainability. In this article, we will delve into the intricacies of this major trend and explore the impact it will have on businesses.

Get ready to learn about how social ESG and responsible investing are changing things.

This article offers tips for companies to become more eco-friendly and build positive relationships with their stakeholders for the long term.

The Rise of S in ESG

In recent years, there has been a significant push for companies to incorporate ESG practices into their operations.

Consumers want more sustainable products and services. Investors are pressuring companies to be more responsible and ethical. Governments are making regulations for sustainability reporting.

People have mostly been paying attention to the environmental and governance parts of ESG, but they haven't been giving much thought to the social aspect.

Nonetheless, the scenario is evolving, with corporate ESG in countries such as Australia, Canada, and the EU, now incorporating social elements into their reporting criteria.

In Australia, the Australian Securities Exchange (ASX) has introduced new guidelines for listed companies to report on their social impact, including diversity, human rights, and labor practices. In Canada, the Toronto Stock Exchange (TSX) has also introduced new guidelines for listed companies to report on their social impact, including diversity, human rights, and labor practices.

In the EU, the European Commission has proposed new regulations that would require large companies to report on their social and environmental impact, including diversity, human rights, and labor practices. These regulations are expected to come into effect in 2024.

More than 50,000 EU-based companies and approximately 10,400 non-EU enterprises will be subject to CSRD compliance, according to a Wall Street Journal article that cites research from financial data firm Refinitiv.

How poor ESG practices with supply chain can cost companies between 6% and 20% in revenue loss, according to recent research by IBM.  In a recent development, South Korean automaker Hyundai Motors divested its subsidiary factory in Alabama following allegations of child labor concerns, according to Reuters.  Notably in the U.S., there have been 117 sanctions imposed on companies accused of using forced labor practices involving Uyghurs populations, resulting in 2,325 shipments denied and 988 pending for a total value of $826 million, according to the U.S.

Thomson Reuters research indicates that 71% of C-Suite and functional leaders anticipate the growing significance of ESG in corporate performance.  According to PWC's 2021 Global Investors Survey, 79% of investors consider ESG risks and opportunities an important factor in investment decision-making

Impact on Corporate Procurement Practices

The inclusion of social factors in corporate ESG reporting has a significant impact on corporate procurement practices. Companies are now expected to consider the social impact of their suppliers when making purchasing decisions.

This means that companies have to evaluate the ESG practices of their suppliers. They should check how these practices affect society. This evaluation should be done before signing contracts with them.  This will require companies to collect and report on ESG metrics, including social metrics, to demonstrate their commitment to sustainability. Typically corporates can negotiate proper ESG or Impact Metrics or businesses can become proactive and work towards B Certification. Either way, suppliers must understand stakeholder-driven data collection practices and reporting.  This does require them to set up a robust framework, and data collection reporting.

The Importance of Reporting ESG Metrics

Reporting ESG metrics is crucial for companies looking to incorporate ESG practices into their operations. It allows companies to track their progress, identify areas for improvement, and demonstrate their commitment to sustainability to stakeholders.

What Are ESG Metrics?

ESG metrics are a set of environmental, social, and governance indicators that companies use to measure their sustainability performance. These metrics can include energy consumption, greenhouse gas emissions, diversity and inclusion, employee turnover, and board diversity, among others.

Impact metrics are a subset of ESG metrics that focus specifically on measuring the social and environmental impact of a company's activities. While ESG metrics provide a broader view of a company's sustainability performance, impact metrics delve deeper into quantifying the positive or negative effects that a company's actions have on society and the environment.

ESG metrics include various indicators. These indicators cover environmental factors like carbon emissions and waste management, social factors like employee diversity and community engagement, and governance factors like board structure and executive compensation.

On the other hand, impact metrics measure the outcomes and effects of a company's activities in terms of social and environmental progress. For example, impact metrics may include measuring the number of people lifted out of poverty as a result of a company's initiatives, the reduction in greenhouse gas emissions attributed to their operations, or the improvement in educational opportunities for disadvantaged communities supported by the company.

In summary, impact metrics provide a more focused assessment of a company's specific social and environmental impact, while ESG metrics offer a broader evaluation of its overall sustainability performance. Both types of metrics are important for companies to assess and communicate their commitment to responsible and sustainable practices.

Benefits of Reporting ESG Metrics

Sustainability report
by Grab (https://unsplash.com/@grab)

Reporting ESG metrics offers several benefits for companies, including:

  • Transparency: Reporting ESG metrics allows companies to be transparent about their sustainability practices and progress. This can help build trust with stakeholders, including customers, investors, and employees.
  • Identifying Areas for Improvement: By tracking ESG metrics, companies can identify areas where they need to improve their sustainability practices. This can help companies set goals and develop strategies to achieve them.
  • Attracting Investors and Customers: With the increasing focus on sustainability, reporting ESG metrics can help companies attract investors and customers who are looking to support sustainable businesses.
  • Compliance: As mentioned earlier, some countries and stock exchanges have introduced regulations that require companies to report on their ESG practices. By reporting ESG metrics, companies can ensure compliance with these regulations.

Rise in Social Procurements

However, social procurement practices are indeed a major trend in the green initiatives. Many corporations are now requiring suppliers to provide social ESG impact metrics as part of their procurement process. In some cases, businesses that have obtained B Certification are given preference in the bidding process. However, collecting data for other social impact metrics can be a challenge for bidding businesses.

To collect data for social impact metrics, businesses can consider the following approaches:

1. Stakeholder Engagement: Engaging with stakeholders such as employees, customers, and local communities can provide valuable insights into the social impact of a business. Surveys, interviews, and focus groups can help gather qualitative data on social practices and outcomes.

2. Partnerships and Collaborations: Collaborating with external organizations, such as non-profits or research institutions, can provide access to data and expertise in measuring social impact. These partnerships can help businesses collect relevant data and ensure credibility in their reporting.

3. Internal Data Collection: Businesses can collect data on their social impact through internal processes such as employee surveys, customer feedback, or tracking community engagement initiatives. This data can be used to measure and report on key social impact metrics.

4. Industry Standards and Frameworks: Businesses can use established industry standards and frameworks, such as the Global Reporting Initiative (GRI) or the Social Return on Investment (SROI) methodology, to guide their data collection and reporting processes. These frameworks provide guidelines and indicators for measuring social impact.

Overall, collecting data for social impact metrics requires a combination of internal data collection, stakeholder engagement, partnerships, and adherence to industry standards. By integrating these practices into their operations, bidding businesses can meet the growing demand for social ESG impact metrics in the procurement process.

Engaging Stakeholders in the ESG Reporting Process

Engaging stakeholders in the ESG reporting process is crucial for companies looking to incorporate ESG practices into their operations. It allows companies to gather valuable feedback, build trust, and demonstrate their commitment to sustainability.

ESG Reporting Frameworks

The common frameworks for reporting are GRI, UN Global Compact, and TCFD. In addition, we also discuss the rise of B Certification as another alternative. Here's a comparative table that outlines the key differences between three common ESG reporting frameworks: the Global Reporting Initiative (GRI), the UN Global Compact, and the Task Force on Climate-related Financial Disclosures (TCFD).

Feature/Aspect GRI UN Global Compact TCFD
Focus Comprehensive coverage of sustainability (economic, environmental, social) Human rights, labor, environment, and anti-corruption Climate-related financial risks and opportunities
Scope Broad, includes a wide range of sustainability topics Broad, but primarily focused on ten principles in four areas Specific focus on climate-related issues
Target Audience Businesses seeking to report on sustainability impacts Companies committed to implementing universal sustainability principles Companies looking to disclose climate-related financial information to investors
Reporting Principles Transparency, inclusivity, auditability, completeness, relevance, sustainability context, timeliness Alignment with ten universally accepted principles Focus on governance, strategy, risk management, and metrics & targets
Reporting Requirements Extensive and detailed across various sustainability aspects Aligns with ten principles; encourages annual Communication on Progress (COP) Encourages disclosure of climate-related risks in financial filings
Flexibility/Customization High flexibility with modular, universal, and topic-specific standards Flexible, with emphasis on continuous improvement Guiding principles and recommended disclosures provide a framework but allow for flexibility
Geographical Reach Global Global Global
Use Case Comprehensive sustainability reporting Commitment to corporate sustainability and ethical business practices Financial reporting with a focus on climate-related impacts and risks
Third-party Verification Encouraged but not required Not required, self-assessment through COP Not specifically required, but transparency is encouraged
10. Collaboration and Report Crafting • Partnering with Experts
• Report Drafting
11. Looking Ahead • Evolving Standards
• Technology Integration
  • For more detailed information on GRI standards and reporting guidelines, visit GRI's website.
  • To learn more about the principles and reporting process of the UN Global Compact, you can visit their website.
  • Detailed guidance on TCFD recommendations can be found on their official website.

Who Are Stakeholders?

Stakeholders are individuals or groups that have an interest in a company's operations and can be affected by its actions. This can include customers, employees, investors, suppliers, and the local community.

Satekeholders for Ehanced Impact
Stakeholders participation to assess program efficiency

How does Corporation Procurement view B Corp Certification?

B Corporation (B Corp) certification is increasingly influencing corporate procurement practices, particularly in the area of social procurement. Companies are recognizing the value of engaging with suppliers that demonstrate strong social and environmental performance, as evidenced by B Corp certification. This trend reflects a broader shift towards sustainability and corporate social responsibility (CSR) in procurement strategies.

  1. Screening Suppliers for Positive Impact: B Corps, like Seventh Generation and Natura &Co, use their B Corp certification as a framework to assess and improve their supply chains. These companies have adopted supplier codes of conduct and are actively working towards significant environmental and social goals, such as net-zero carbon emissions and upholding human rights standards. By doing so, they set a high bar for ethical, transparent, and responsible business practices, influencing other companies to follow suit​​.
  2. Integration with Procurement Platforms: Platforms like Supplier.io have incorporated B Corp Certification data, recognizing the importance of this certification in procurement decisions. With almost 8,000 B Lab Certified B Corporations across 89 countries, this integration allows procurement leaders to easily identify and partner with companies that meet high standards of social and environmental performance. This is a clear indication that B Corp certification is becoming a valuable metric for companies looking to advance their ESG initiatives through procurement​​.
  3. Role in Social Procurement: Social procurement, which emphasizes buying from and working with suppliers that address environmental degradation and social inequality, is gaining traction. Companies like Patagonia, for instance, focus on sourcing from social enterprises that practice sustainability and equity. B Corps are often aligned with these goals, making them attractive partners for companies engaged in social procurement​​.
  4. Influence on CSR and Sustainability: B Corp certification aligns well with the goals of CSR and sustainable procurement. Companies are increasingly aware of the impact their procurement decisions have on the environment and community. By partnering with B Corps, companies can ensure that their supply chains are environmentally responsible and socially ethical, contributing to broader CSR objectives.

Challenges and Opportunities

While the integration of B Corp certification into corporate procurement practices offers numerous benefits, there are challenges too. Convincing suppliers to adopt sustainable practices can be difficult, especially if it requires significant investment or operational changes. However, the growing recognition of B Corp certification in procurement platforms and the increasing importance of CSR and sustainability in business strategies are creating more opportunities for B Corps to influence corporate procurement practices positively.

In summary, B Corp certification is becoming an essential consideration in corporate procurement, particularly in the context of social procurement, sustainability, and CSR. Companies are using B Corp standards to screen suppliers and integrate these considerations into their procurement platforms, thereby influencing the wider business community towards more sustainable and socially responsible practices.

How to Engage Stakeholders in the ESG Reporting Process

Indeed, concerns around gaps in data collection along with transparency from vendors were top concerns for businesses as they prepare for reporting mandates, according to respondents to the survey.

Here are some ways companies can engage stakeholders in the ESG reporting process:

  • Surveys: Companies can use surveys to gather feedback from stakeholders on their ESG practices. This can help companies identify areas for improvement and demonstrate their commitment to sustainability.
  • Collaboration: Companies can collaborate with stakeholders, such as suppliers and customers, to develop strategies for improving their ESG practices. This can help build trust and foster a sense of shared responsibility for sustainability.
  • Transparency: As mentioned earlier, reporting ESG metrics can help build trust with stakeholders. Companies should be transparent about their ESG practices and progress to demonstrate their commitment to sustainability.

Below is a comparative table highlighting key differences between the Sustainability Accounting Standards Board (SASB) and the European Financial Reporting Advisory Group (EFRAG):

Feature/Aspect SASB (Sustainability Accounting Standards Board) EFRAG (European Financial Reporting Advisory Group)
Origin & Background A non-profit organization based in the United States, SASB develops sustainability accounting standards to help businesses disclose material sustainability information to investors. A European organization that provides expert advice to the European Commission on financial reporting and sustainability reporting matters.
Focus Area SASB focuses on financial materiality, identifying sustainability issues that are likely to affect the financial condition or operating performance of a company within an industry. EFRAG has a broader focus, contributing to European sustainability reporting standards that encompass a wide range of stakeholders beyond just investors.
Target Audience Primarily targeted towards investors, providing them with standardized, comparable, and reliable information for making investment decisions. Targets a wide range of stakeholders, including policymakers, companies, and the general public, focusing on holistic sustainability reporting.
Framework/Standards Provides industry-specific standards across multiple sectors, addressing sustainability issues relevant to those sectors. Works on developing European sustainability reporting standards, including the development of the European Sustainability Reporting Standards (ESRS).
Geographical Application Mainly used in the United States but recognized and applied globally. Primarily focused on the European context but has global implications due to the influence of European markets.
Reporting Requirements Focuses on sustainability factors that have a direct impact on financial performance. Reports are typically integrated into annual financial reports or sustainability reports. Aims to create comprehensive sustainability reporting standards, potentially encompassing a wide range of ESG factors.
Compliance Voluntary compliance but widely recognized by global investors. As part of the European reporting framework, compliance could be mandatory for companies operating in EU member states, depending on regulatory decisions.
Customization Allows for some degree of customization but within the bounds of industry-specific standards. Likely to offer a standardized approach with some degree of flexibility to accommodate the diverse nature of businesses in Europe.
  • For more detailed information on SASB standards and their application, you can refer to SASB's official website.
  • To understand EFRAG's role, work, and contributions to sustainability reporting standards in Europe, visit EFRAG's official website.

Real-World Examples of Social ESG in Action

Unilever

Unilever, a multinational consumer goods company, has been a leader in incorporating social ESG practices into its operations. The company has set ambitious goals to improve diversity and inclusion, reduce its environmental impact, and promote sustainable sourcing.

Unilever has also engaged stakeholders in its ESG reporting process, with its Sustainable Living Plan Advisory Council providing feedback and guidance on its sustainability strategy.

Patagonia

Patagonia, an outdoor clothing and gear company, has been a pioneer in sustainability and social responsibility. The company has a strong commitment to environmental and social causes and has implemented various initiatives to reduce its environmental impact and promote fair labor practices.

Patagonia also engages stakeholders in its ESG reporting process, with its Footprint Chronicles website providing transparency and accountability for its sustainability efforts.

Conclusion

The rise of social ESG is expected to be a major trend in 2024, with corporate ESG in Australia, Canada, and the EU now including social factors in their reporting requirements. This will have a significant impact on corporate procurement practices, with companies expected to consider the social impact of their suppliers when making purchasing decisions.

Reporting ESG metrics and engaging stakeholders in the process is crucial for companies looking to incorporate ESG practices into their operations. It allows companies to track their progress, identify areas for improvement, and demonstrate their commitment to sustainability to stakeholders.

By implementing best practices and engaging stakeholders, companies can successfully incorporate social ESG into their operations and contribute to a more sustainable future.

Learn More: ESG Data Decoded

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