How Does ESG Address Social Concerns?
When investors perform their due diligence before deciding where to put their money, they often consider environmental, social and governance (ESG) criteria to get a better picture of the company’s values and priorities. Many investors prefer to support a company whose values align with their own.
Social criteria encompass relationship management and how the company fits into the community where it produces its goods or services. It is perhaps the most nebulous of the three criteria, as sometimes a company’s actions in these areas are open to interpretation. ESG turns goal-setting into something measurable and extrapolates performance indicators from those results.
Social Concerns and ESG
A company’s social responsibility encompasses any social interactions that can impact the risk a company incurs, and can be used to encourage companies to improve their social equity.. Social responsibility focuses on three main areas.
1. Human Rights and Community Relations
Human rights, community relations and ESG are inseparable. Concerns include how employees feel about working for the company and employee turnover rate. A low employee turnover rate is typically a good indicator that employees feel satisfied and enjoy their work. It also measures supplier support of a business and productivity of the business, which is bolstered when a company treats people right.
Providing local philanthropic support and hiring from within the community offer tangible ways to support people. Human rights violations can occur within the supply chain, such as exploitive worker practices. Choosing to work in a particular geopolitical area can also impact human rights.
2. Diversity and Inclusion
Diversity can also impact ESG assessments. A diverse workforce brings more perspectives to corporate decision-making. Businesses with greater diversity in gender, race, ethnicity, sexual orientation and veteran status enable companies to consider things they may not otherwise have thought about.
Companies can attract more talent and provide better governance when they exhibit diversity. Smart companies recognize that diversity sparks productivity and creativity, two vital aspects of thriving businesses. Offering data on diversity demonstrates a company’s transparency and inclusive culture.
3. Health and Safety in the Workplace
Keeping workers safe isn’t just an excellent way to reduce risk, it’s also a smart business practice. Investors do not want to be associated with a company that puts profits ahead of worker safety. The Covid-19 pandemic has heightened concerns about worker safety. Factors investors may look at include:
- Personal protective equipment policies
- Incidence of workplace accidents
- Workers’ compensation claims
Businesses that demonstrate genuine concern for employees and avoid putting people at risk receive higher social ratings.
Who Provides ESG Risk Assessments?
TRC offers ESG risk assessments, which give companies an idea of what investors see when performing due diligence. Through TRC’s services, you can determine what you need to address to reduce risk and improve ESG judgments. We have an experienced and responsive staff ready to assist you.
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Turn to the experts at TRC.