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Sustainability
Don’t ignore the S in ESG: A strong social strategy is essential
Business giants are slowly realizing the benefits of focusing on societal impact. Here’s how your company can meet regulatory requirements and the expectations of sustainability indexes.
When it comes to ESG, the focus has primarily centered on environmental and governance aspects. However, that is starting to change, with many companies now recognizing the importance of a strong social strategy too.
Take PepsiCo, for example. The global food and beverage giant has set goals to reduce sodium, enhance the nutritional value of its products, and track progress in diversifying its product ranges to better align with healthier consumption patterns. In the same sector, Danone reports on its efforts to enhance the nutritional profile of its offerings and promote healthy lifestyles among consumers.
Apple discloses its progress in enhancing accessibility features across its devices and software, aiming to provide inclusive technology for a diverse user base. Vodafone supports education, health, and community development initiatives to empower communities by providing essential services and fostering socio-economic development.
In pharma, Novo Nordisk reports on community support initiatives, focusing on education and local healthcare improvements, while Merck and Roche have launched projects to strengthen the communities where they operate, supporting education, health equity, and economic development.
This shift demonstrates that as ESG maturity grows, so does the ability to align social strategies with core business outcomes. In this article, we explore the key social reporting dimensions that companies must address to meet regulatory requirements and the expectations of sustainability indexes.
Our analysis draws on data from top-ranked ESG companies in leading sustainability performance indexes (DJSI, MSCI ESG, FTSE4Good, S&P Global ESG, SASB, and Stoxx Global ESG Leaders). By reviewing publicly available reports, enhanced by AI tools, a heatmap was derived to highlight the most frequently reported social topics and approaches. Interviews with sustainability leaders further validate these findings.
Despite their differences, common themes emerge: employee engagement, workplace safety, gender diversity, human rights, and the broader impact on the value chain.
1 – Understanding the external requirements
When disclosing societal impact, companies must balance the expectations of regulators and top sustainability indices. A deep dive into key performance indicators (KPIs) across major social indices – including the Dow Jones Sustainability Indices (DJSI), MSCI ESG, FTSE4Good, S&P Global ESG Scores, SASB, and Stoxx Global ESG Leaders – reveals a mix of distinct and overlapping priorities.
Each index brings its own focus. DJSI emphasizes broad stakeholder engagement, workforce diversity, community programs, and customer satisfaction, while MSCI homes in on labor practices, diversity, human rights, and detailed community relations. SASB is industry-specific, with standards covering labor practices, supply chain standards, product responsibility, and community impact.
Despite their differences, common themes emerge: employee engagement, workplace safety, gender diversity, human rights, and the broader impact on the value chain. These common areas, highlighted in blue, reflect topics where companies are being measured – and where they are encouraged to act upon it and deliver.
Regulatory frameworks also reflect a growing emphasis on social aspects. The Global Reporting Initiative (GRI) standard underscores diversity, equal opportunity, non-discrimination, and employment practices. The Sustainability Accounting Standards Board (SASB) zeroes in on how businesses handle risks and opportunities, with a focus on workforce diversity, inclusion, and engagement.
Meanwhile, the European Union’s Non-Financial Reporting Directive (NFRD) and its successor, the Corporate Sustainability Reporting Directive (CSRD), mandate disclosure on how companies address social and environmental challenges, particularly around diversity and equal opportunities. The United Nations Global Compact takes it further, requiring detailed breakdowns of workforce demographics by race, gender, and job category.
The analysis highlights that diversity, equity, and inclusion (DE&I) and employee engagement are powerful levers for meeting regulatory demands and ESG index criteria, positioning companies to excel on both fronts. By addressing these areas, companies can generate many positive side effects, both internally and externally.
2- Insights from the front runners
At first glance, the social (S) dimension of ESG might seem tied to philanthropy, but a deeper dive into sustainability reports from ESG rating top-performing companies reveals key priorities.
By clustering reporting disclosures based on the topic, employee well-being, safety, and DE&I lead the charge, followed by community engagement, human rights and labor practices, and responsible sourcing.
As we have seen, industry-specific factors also stand out – access to healthcare is prominent for pharmaceutical companies, employee training and digital inclusion in tech, and health, nutrition, and water stewardship for food and beverage firms.
When it comes to DE&I, companies report on:
- Representation metrics
- Inclusive hiring practices
- Plans to increase diversity at the management level
- Training on inclusion
- Support for employee resource groups
- Efforts toward pay equity
On the employee well-being and safety front, disclosures cover the following:
- Flexible work conditions
- Career development
- Mental and physical health programs
- Safety initiatives metrics
- Employee engagement
The maturity of social reporting in ESG varies. Some companies focus mainly on compliance, ticking the boxes on required KPIs, while more progressive firms go further, showcasing how effectively managing these KPIs can mitigate risks and unlock business opportunities with case studies and further details that go above and beyond the regulatory requirements.
3 – A social impact strategy approach
The growing demand for external disclosure is pushing companies to invest more heavily in ESG reporting. A phased approach is recommended to tackle the social dimension strategically.
The deep-dive analysis highlights that regulatory requirements are the baseline and non-negotiable. As companies mature in their ESG efforts, moving from mere compliance to using sustainability as a driver of business decisions, the connection between social reporting and operational risks and opportunities strengthens, allowing for more tailored metrics beyond regulatory demands.
Key takeaways
The social pillar of ESG is no longer an optional focus but a critical element in business strategy. Addressing areas like employee well-being, DE&I, and community impact is not only about meeting regulatory requirements but also about reducing operational risks and enhancing brand reputation. These social factors are deeply connected to business performance and long-term value creation.
Moreover, companies that go beyond mere compliance by integrating social metrics into their strategic decision-making are gaining a competitive edge. Leading firms are crafting detailed social reports tailored to their industry’s unique challenges. DE&I has become a powerful lever for companies to enhance their societal impact reporting, and despite a recent backlash in the US, remains a crucial marker of social responsibility. Embedding DE&I into operational narratives not only helps companies meet regulatory requirements but also positions them as leaders in driving long-term, meaningful change.
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