Teasing Out the ESG Mantra: The 'S' Factor | ETF Trends

When looking at socially responsible investments that track environmental, social, and governance principles, many have singled out the ‘E’ component over the years to help fight the negative effects of climate change. The coronavirus pandemic has helped place greater emphasis on the ‘S’ factor.

Companies are beginning to give greater attention to social factors that have not been given proportionate attention historically, Manjit Jus, Managing Director, Global Head of ESG Research and Data, S&P Global, writes for GreenBiz.

“Social factors include how a company manages relationships with its workforce, the communities in which it operates and the geopolitical environment. The COVID-19 pandemic has pushed ‘S’ into the spotlight by highlighting a range of problematic societal issues as millions of people around the world found themselves suddenly out of work with little protection,” Jus said.

There are many nuances that contribute to the social factor, such as gender equality, human rights, and labor standards.

“The social element of ESG issues can be the most difficult for investors to assess. Unlike environmental and governance issues, which are more easily defined, have an established track record of market data, and are often accompanied by robust regulation, social issues are less tangible, with less mature data to show how they can impact a company’s performance,” according to the United Nations Principles for Responsible Investment.

Jus argues that social sustainability factors are material issues for many industries, and that successful management of these issues can be directly linked to intangible assets like a company’s reputation and brand equity. For instance, a good social performance can translate into improved business performance and better relationships with customers and local communities.

Gender equality and human rights are two important areas in the social sphere. Jus contends that gender diversity enhances corporate governance, talent attraction, and human capital development, which may all contribute to long-term competitiveness. Meanwhile, corporate policies promoting gender diversity can reflect a company that realizes diversity’s value in stimulating creativity and increasing productivity, along with promoting employee well-being.

“Companies are asked a number of questions about their gender equality policies and practices in the annual survey. Findings suggest that companies with a more diverse and equal workforce are indeed better positioned to outperform,” Jus added.

For more news, information, and strategy, visit the ESG Channel.