Dominos falling into each other

Broadening your perspective: How social factors impact your business

Broadening your perspective: How social factors impact your business

Synopsis
3 Minute Read

The “S” side of ESG can often be difficult to interpret, because “social” is such a broad term. Nowadays, it needs to encompass more than simply having a plan for Corporate Social Responsibility (CSR), community engagement, or charitable giving.

The social factors you need to prioritize include:

  • Culture
  • Equity, Diversity, and Inclusion (EDI)
  • Working conditions
  • Customer data privacy
  • Modern slavery
  • Human rights
  • And more

As you put your mind to making positive contributions to society, rather than simply maximizing your bottom line, you’ll find your organization can become more sheltered from risk and more successful in the long term.

Leader, Consulting – Organizational Renewal

It’s safe to assume almost all Canadian business owners and people leaders are aware that the “S” in ESG stands for “social”. On its own, however, the word “social” can mean many things; your responsibility as an organizational leader is to help your social engagements become more meaningful to your community, your customers, and your team members, and re-examine your assumptions regarding what that should look like.

Ideas such as “Corporate Social Responsibility” and “Community Engagement” aren’t new, but they are sometimes plagued by oversimplified interpretations or execution: if we simply give money to charity and do some volunteer work, our social obligations are satisfied. The truth is you need to prioritize real outcomes that are relevant to your organization’s purpose and values. Grand gestures and photo ops are trivial compared to consistently doing the little things right, for the right reasons.

What is actually included in the “S” of ESG?

At its core, the “S” in ESG is underpinned by an understanding that your organization should stand for more than simply bringing in as much money as possible for yourself and your investors. If you have the position, the visibility, and the influence to make the world a better place, you should leverage it.

“Social” is an umbrella term; as you break it down into its components, your social responsibilities become clearer, and your initiatives become more impactful. You can start by separating your social priorities into two domains: Internal and External.

Get clarity on today’s most pressing issues

Our Practically Speaking series is home to insights and advice designed to help you navigate the most pressing issues in a volatile economy. More insights like this one are coming your way — sign up today to ensure you don’t miss them.

Internal factors

Oftentimes, your outward-facing social efforts will be seen as hollow if you don’t have your own house in order first. Here are some examples of internal factors that fall under the “S” umbrella:

Culture

Even if the task seems elusive, you have a responsibility to oversee and shape your organization’s culture. How you choose to run your organization, and the quality of the relationships between your team members, all fall under the “social” umbrella. 

Ask yourself: Does our organization, consciously or unconsciously, harbour behaviours like bullying, intimidation, or exploitation? Are we doing enough to create psychological safety, and a workplace where people enjoy contributing and building relationships?

Equity, Diversity, and Inclusion (EDI)

It’s not enough to simply have an EDI policy. Your role as a business owner or people leader includes overseeing its effectiveness, being a champion of its execution, and making sure everyone has a voice.

Ask yourself: Are decisions regarding compensation, promotion, and hiring made with equity top-of-mind? Do our people have the confidence and the tools to speak up if they are a victim of discrimination, or witness it?

Working conditions

You may not immediately associate issues such as occupational health and safety to the “S” side of ESG, but the truth is working conditions can play an immense role in your team members’ quality of life. Going above the minimum legal requirements to ensure your employees have a positive experience at work, and being an advocate for safety (in all its forms), is among your social responsibilities.

Ask yourself: Do we solicit the feedback of our team members to ensure their work life doesn’t hinder their well-being? Aside from obvious items like workplace injuries, what aspects of safety do we need to think about more seriously?

Customer data privacy

Your clients and customers expect you to be transparent and honest with how you handle and protect their personal information. While there are laws and standards surrounding cybersecurity, there is also a moral imperative to be vigilant with the data they’ve entrusted to you.

Ask yourself: Do we only seek to meet the legal requirements, or do we hold ourselves to a higher standard? How would our organization respond to a cyber attack in a way that puts our customers and clients first?

External factors

Your customers and your people are your first responsibility, but being mindful of what happens outside of your organization is crucial too. Socially conscious organizations can be a key part of creating healthy, safe, and sustainable societies.

Modern slavery

While you may think of modern slavery as one of those farfetched issues that “could never happen to us”, it’s important to keep in mind just how prevalent the issues of forced labour and child labour are, even today. Major North American companies have already had their operations stalled or faced other repercussions because they couldn’t prove these illegal labour practices were fully absent from their supply chain.

A study from York University showed that only 29 percent of Canadian companies are actively looking beyond their first tier of suppliers, even though modern slavery often lurks in the lower tiers of the supply chain. Stricter regulations for oversight and reporting of forced or child labour are already on their way for Canadian organizations.

Ask yourself: Has our organization performed enough due diligence with suppliers to identify labour practices that are not compatible with your standards and values, at home or abroad? Would we be able to recognize and rectify forced labour if you did encounter it?

Human rights

The challenge of human rights violations is so broad and profound that you may wonder how your organization can make any meaningful difference. But as you pay attention to the ills affecting society and the places where you do business — violence, oppression, and discrimination in all their forms — you can align yourself with causes and projects that will help make a small difference.

Ask yourself: What human rights violations are the most likely to impact our workplace, and the lives of our team members and consumers? How will we communicate about these sensitive issues, and our own efforts to create positive change, internally and externally?

Risks of ignoring the “S” in ESG

It’s possible that when economic storm clouds start brewing, your organization may be inclined to focus less on the “S” in ESG and more on its balance sheet. But regardless of what happens to inflation, interest rates, and the economy in general, these issues will not go away.

All of the internal and external issues mentioned above carry risks when they’re left by the wayside. Here are a few examples:

  • Litigation
  • Insurance claims and related costs
  • Loss of investor confidence
  • Reduced employee satisfaction and retention
  • Regulatory fines
  • Reputational damage
  • Loss of customers or clients, or reduced spending

As time passes, organizational leaders and board members are being held to a higher standard of accountability on social issues. Agency oversight is critical. It is now more difficult to claim ignorance of these issues, distance yourself from risks by relying on agents or middlemen.

A new perspective

The “S” often tends to be the forgotten, and perhaps misunderstood, sister of ESG. There are a plethora of regulations pertaining to environmental and governance practices that make your responsibilities clearer and easier to measure. It’s easy to think of “social” as an art, while considering “environmental” and “governance” as more of a science — your social responsibilities can seem more vague, and more open to your interpretation.

In reality, the investments you make to improve society, and by extension the lives of your team members and stakeholders, can help your business reduce risk and bolster its long-term success. Not only are there legal and compliance issues to be aware of (for example in occupational health and safety, modern slavery, cybersecurity, and more), but you also have a moral imperative and expectation to conduct your organization ethically and help alleviate social challenges when you can.

Contact us:

To learn more, contact:

Mary Larson, MBA, ICD.D, Partner
[email protected]
514.228.7905

Kevin Joy, MBA, Partner
[email protected]
514.228.7898

Insights

  • Performance

    April 16, 2024

    Software in British Columbia: Taxation in perpetual motion

    What software is taxable in British Columbia for PST purposes? Discover the changes introduced in the province’s 2024 budget.

  • Performance

    April 16, 2024

    2024 Federal Budget Highlights

    View MNP’s full tax analysis of the 2024 federal budget.

  • Progress

    Your farm succession plan isn’t complete until it exists in writing

    The average age of farmers in Canada is increasing. Having a written succession plan becomes more important as you age, to help secure your legacy, protect your farm operation, and reduce conflict.