Last Updated on Sunday, 9 July, 2023 at 9:37 am by Andre Camilleri
Elena Goudarzvand is an advisory intern within PKF Malta
In recent years, the concept of Environmental, Social and Governance (ESG) has gained significant traction in the corporate world.
While E and G factors have traditionally received more attention, the S in ESG, which represents the social dimension, is now emerging as a crucial aspect in assessing a company’s sustainability and long-term viability. This article explores the importance of social factors within the ESG framework and why businesses must pay heed to their social impact alongside environmental and governance considerations.
Social factors encompass a broad range of issues that relate to a company’s impact on society and its stakeholders. They include aspects such as human rights, labour standards, employee well-being, diversity and inclusion, community relations, customer satisfaction and product safety.
Evaluating a company’s social performance helps gauge its commitment to ethical practices, fair treatment of employees, respect for human rights and contribution to the well-being of communities it operates in.
In the past, corporations were primarily focused on maximising profits and delivering value to shareholders. However, as societal expectations evolve, businesses are increasingly being held accountable for their broader impact on society.
The social dimension of ESG encourages companies to go beyond profit maximisation and consider the interests of a wider range of stakeholders, including employees, customers, suppliers, communities and the environment.
Incorporating strong social practices into business strategies can significantly enhance a company’s reputation and brand value. Consumers are becoming more conscious of their purchasing decisions and are drawn to brands that align with their values.
Demonstrating a commitment to social responsibility can attract loyal customers, strengthen customer trust and differentiate a company from its competitors. Moreover, a positive reputation for social impact can also help attract and retain top talent, as employees increasingly seek purpose-driven organisations.
How can we mitigate risks and ensure long-term sustainability? The best approach is to address social factors within the ESG framework. Omitted, it can expose businesses to reputational and operational risks. Instances of labour rights violations, discrimination or supply chain controversies can lead to public backlash, boycotts, legal repercussions and even financial losses.
Companies that prioritise social factors can proactively identify and mitigate potential risks, leading to more resilient and sustainable operations. It is necessary to engage all stakeholders for achieving sustainable development. Thus, engaging with stakeholders is a critical component of effective social impact management.
By involving stakeholders such as employees, communities, NGOs and investors, companies can gain valuable insights into their social performance, identify areas for improvement and build stronger relationships based on trust and transparency.
Engaging stakeholders also ensures that decisions and policies are inclusive and consider diverse perspectives, contributing to more sustainable and equitable outcomes. Can we achieve positive change and the right impact? Certainly, by embracing social factors within their ESG strategies, companies have the potential to become catalysts for positive change.
Businesses can leverage their influence and resources to address pressing social issues, drive innovation and contribute to the achievement of global sustainable development goals. This proactive approach not only benefits society but also presents opportunities for companies to develop new markets, build partnerships and foster innovation-driven growth.
In conclusion, by respecting social factors within the ESG framework, this reflects a growing recognition that businesses must prioritise people alongside profits. By addressing social impacts and striving for equitable, ethical practices, companies can enhance their reputation, mitigate risks, attract customers and talent and contribute to sustainable development.
As the importance of ESG continues to gain momentum, the integration of social factors becomes not just a responsible choice but a strategic imperative for businesses aiming to thrive in an evolving and socially conscious world. PKF has organised two ESG conferences this year held at the Hilton to inculcate the right attention of all stakeholders towards ESG.
After the success of these events there will be another event in October to focus entirely on the governance factor of ESG. We hope that such initiatives will be well patronised by the business community.