Social and governance: core to ESG

ESG: social and governance compliance is core

ESG refers to standards that businesses can implement as part of their social contract. The three initials mean “Environmental”, “Social”, “Governance”. These three terms capture the three major axes of social responsibility that every corporate should be considering as they carry ou their day-to-day business. For a discussion of what is ESG, please follow this link: here. The social and governance aspect of ESG is core to compliance.

S + G – examples of the core ESG issues

Social and governance issues include:

• Paying workers fairly and on time
• Paying a living wage
• Ensuring workers are not forced to work or forced into high levels of overtime
• Equal treatment of workers, for example, between men and women
• Appropriate handling of pastoral needs, sick pay, maternity leave and working hours
• Ensuring safe working environments, with enough training and enough support for the jobs involved

7 out of the 17 UN sustainable development goals (“SDGs”) are influenced by social and governance practices in the workplace which makes them core to complying with ESG standards.

Our worker voice app delivers ESG compliance on these 7 UN SDGs in real-time, continuously, and anonymously – delivering standardised social scores on workplaces that can be compared domestically and internationally.

Why are S + G difficult?

Issues around “social” and “governance” are not forgotten either, but they have received significantly less investment and publicity than the drive for net zero.

There has been huge publicity, quite rightly, over the threat that climate change poses to our lives and the stable functioning of society. Many voices are calling out for change, focussing in particular on the drive to achieve “net zero” or a “carbon-zero” operations.

There may be many reasons for this:

• Issues of social and governance in business are difficult to measure scientifically.
• It is harder to visualise what social and governance problems look like, and harder to imagine the solution. By and large, business failings in these areas occur in far off places and are often un-reported and hidden from consumers and economies in the developed world.
• Problems feel like they may be to big to solve. Dealing with climate change feels like is a matter of technology and scientific advance – being smart and clever and doing this better tomorrow. These are initiative which advance the cause of the human race. Dealing with social and governance problems is about changes that can be made right now – and which require a level of generosity and fairness with respect to our fellow humans – which not all of us naturally have.

We can see how this plays out when we listen to the voices of industry in emerging markets. On the hand, huge progress has been made in systems, audits, checks and standards that are being imposed by international corporate buyers on their supply chains. On the other hand, price pressure remains relentless – and the general sense historically has been that consumers of products in shops and online can often be unwilling to pay more for ethically-sourced goods – especially if ethically-sourced means paying higher wages to the worker who make the products and providing them with better and safer workplace environments.

But this is certainly changing. “Fair trade” coffee and chocolate, free-range farmed meat, organic foods etc. have become mainstream and consumers have become ready to pay more for food that is produced in a better way.

What remains is to build an equivalent model for manufactured products.

Measuring S + G: annual audits

There have been systems to measure levels of compliance with S + G for many decades. The typical process involves:

1. Establishing standards and policies for workplaces
2. Annual audits to check whether the standards and policies are implemented
3. Collation of data, often based upon evidenced self-certification
4. Creation and maintenance of ratings based upon (1) to (3)

These systems are getting more and more comprehensive, but investors, shareholders and consumers have understood that this approach does rely heavily on the annual audit cycle – and that audits and self-certified compliance statements can be circumvented. On the other hand, this is the best system that we have had, and it has resulted in improvements and positive change across workplaces around the world. So it is not a bad thing – just the best that has been avialable.

Measuring S + G: real-time

Our factory social score is the first real-time system to measure compliance with social and governance standards – as determined by the workers themselves.

For more information on the worker app, click here.

1. Our app goes onto the mobile phones of workers allowing them to rate their workplaces – factories, farms or fields.
2. Workers poll through a large panel of questions, which are organised via a smart user interface into a manageable and quick process – but this allows all aspects of a workplace to be assessed.
3. This allows us to generate a social score and drill down diagnostics on different aspects of a workplace – and for this to be maintained independently, and in real-time.

What is the future?

Real-time measurement of S + G drives incremental change in how millions of workers are treated around world.

Social scores are standardised and comparable. This allows workplaces to compare themselves to peers in-country and internationally, and allows buyers to understand how their workplaces rank – directly for their own and indirectly for their global supply chains.

With comparison comes change – because once we are measuring S + G through the social score – it is possible to drive continuous improvement and continuous assessment. A UK supermarket, for example, is able to compare itself to its peers in its own market and internationally – and work out where it needs to improve. And once everyone is doing this, improvement will happen through natural competition.

And finally, once robust social scores are available at SKU-level, it is then possible to provide this data through to consumers in shops and online. This will give S + G issues the same profile with consumers that the “Fairtrade” and “Organic” brands have delivered in food. The best way to drive change is to involve the consumer.

And social and governance issues are core for investors, consumers and shareholders:

Source PwC 2021 consumer and investor ESG report: here.

How can I find out more?

With a global network and global coverage, talk to us.

• More about trade finance: here
• More about ESG: here

and

• Contact us at your local office: here
• Read more about PrimaDollar: here