Are you ready for the S in ESG and sustainability reporting?

Social is what’s next in sustainability reporting. While environmental issues have had most of the attention lately, the regulatory microscope is already zooming further in on how businesses approach social issues, including mental health at work, health & safety, human rights, labor practices, and more. And we encourage you to not let the social pillar catch you by surprise.

Social’s place in sustainability reporting

The social pillar of sustainability targets the relationships between a company and its employees, consumers, local communities, and a broad range of stakeholders that might be connected to the company’s operations, including the workers in its supply chain. Social reporting is supposed to consider all stakeholders and reflect on how the company engages and affects them.

Social issues can be harder to measure and quantify than environmental matters. There are many more challenges in collecting information, and considerably less standardization.

It’s not surprising that most companies have placed their attention on the environmental given the global impact of climate change, and the direction of government interest. There is much less focus on, or understanding of, the ‘S’ of ESG (environmental, social, governance): the social aspects of sustainability reporting and activity. But public attention and regulatory developments are driving a much broader view.

Regulatory developments around the social pillar

Historically, the main focus of the early instruments focusing on social issues, such as modern slavery and human rights violations, was on reporting and ensuring transparency in supply chains, most of them lacked enforcement mechanisms and were accused of “lacking teeth.” Recent legislation, however, has made a stronger attempt in this direction, but it’s too soon to say if it will be effective. Some examples include:

• The German Act on Corporate Due Diligence in Supply Chains
• The Norwegian Transparency Act
• Proposal for a Corporate Sustainability Due Diligence Directive

It’s important to remember that regulations and guidance are set nationally, but they apply to global supply chains. Their reach is therefore supranational and affects global suppliers. This is a very good starting point for global action, creating an urgent need for enterprises to prepare and to increase their understanding of social issues impacting their operations and supply chains, in order to avoid fines for non-compliance as well as reputational risks.

The point to take away is that governments and international bodies are working hard to better protect human rights. Companies would do well to take note.

Social isn’t a one size fits all

The social pillar is therefore extremely broad when considered as a whole. However, paradoxically, it’s also highly specific to the organization. This makes it very hard to set standards for reporting, because what matters for one organization may be irrelevant for another. What, therefore, should be included?

There is currently no standardized approach to social reporting. There are also very real differences between the approaches taken to social reporting by different organizations that provide sustainability reporting standards.

For example, the Global Reporting Initiative (GRI) includes disclosures related to employment, occupational health and safety, training and education, diversity and equal opportunity, child labor, security practices and rights of indigenous peoples. The Sustainability Accounting Standards Board (SASB), however, requires disclosures on customer privacy, data security, customer welfare, employee engagement, diversity, and inclusion. There is some overlap between the two, but also some clear areas of difference.

Where to start in your sustainability reporting

For the majority of organizations, information on human rights, health and safety, impacts on local communities, and labor practices are the main social issues to be reported on. However, there is considerable scope for variation even within categories with robust regulatory frameworks.

For example, the Universal Declaration of Human Rights has a list of 29 rights that encompass protection of privacy, prohibition of slavery or degrading treatment, freedom of association, social security, right to equal pay for equal work and protection against unemployment. What’s more, the United Nations Guiding Principles on Business and Human Rights (UNGPs) mention that businesses can have an impact on most of the internationally recognized list of human rights. Covering everything could lead to some very long reports.

We suggest some particularly hot topics that you might want to consider for your sustainability reporting are:

• diversity
• equity and inclusion
• occupational health and safety
• mental health and well-being
• social impacts on global supply chains

These issues are relevant to most companies, and we are also seeing increasing regulatory activity in these areas.

Your next steps for social sustainability reporting

In the end, lacking sustainability reporting can cost you. Be careful to not get swept up in the backlash. Bad publicity travels fast in our globalized world and can cause considerable reputational damage. Combined with the bewildering array of social issues to consider, organizations need a comprehensive system to be able to identify, track and manage the social issues that are relevant.

A good place to start is with a dialogue with a broad range of stakeholders, to reach a better understanding of the relevant social risks and opportunities.