The Social Component of Risks and Opportunities in the Current Climate

In recent years, there has been an exponential increase in interest in Environmental, Social, and Governance (ESG) criteria among investors.The ‘S’ or social component of ESG has gained momentum, given the unprecedented times we are living in.

The COVID-19 pandemic and politics have put intense pressure on the human experience of day-to-day life. As a result, investors are more interested than ever in identifying and measuring social investment criteria. Investors want to invest while making a difference.

They are becoming more mindful of their investments’ impact and adjusting business operations and performance to give the social aspect of ESG more focus.

Defining the ‘S’ in ESG can be challenging, but the UN-supported Principles for Responsible Investment highlight human rights, health and safety, freedom of expression, employee relations, and diversity.

The Gender-Equality Index provides a platform for firms to voluntarily disclose their gender-related metrics. In addition, COVID-19 has shifted the focus of leading ESG investors, with firms increasing their analysis of how companies treat employees during the pandemic.

While reporting social factors remains limited, evaluating the impact of ‘S’ issues on recent investment outcomes can be challenging. Organisations should be driving the charge for standardisation, transparency, and accountability to increase standardisation across the board. The ‘S’ component of ESG comes with both risks and opportunities.

On the one hand, companies that do not prioritise social factors may face reputational risks, which could lead to decreased demand for their products or services. On the other hand, companies prioritising social factors may benefit from increased employee loyalty and customer demand.

Furthermore, research has shown a positive correlation between corporate social and financial performance. Social evolution at a company happens as part of a long-term strategy.

Companies that prioritise social factors tend to have a more engaged workforce, leading to increased productivity and better financial performance over the long run.

In addition, companies that prioritise social factors may be better positioned to adapt to changing societal norms and consumer preferences.

In conclusion, the ‘S’ or social component of ESG is becoming increasingly important to investors. The COVID-19 pandemic and the global ricocheting of political instability have put intense pressure on the human experience of day-to-day life.

Investors are interested in identifying and measuring social investment criteria and want to invest while making a difference. While reporting social factors remains limited, evaluating the impact of ‘S’ issues on recent investment outcomes can be challenging.

However, by driving the charge for standardisation, transparency, and accountability to increase standardisation across the board, companies that prioritise social factors tend to have a more engaged workforce, leading to increased productivity and better financial performance over the long run.