What I have learned by working on the 'S' in ESG
Giulia Corinaldi, Director, Inclusive Economies Program, Thomson Reuters Foundation
Environmental, Social, and Governance (ESG) investing is plagued by many challenges and misperceptions about why the social issues, including a company's labour practices, human rights record, and levels of diversity and inclusion matter — and how or whether they can be measured and integrated into investment and business practices.
For this reason, the Thomson Reuters Foundation made the strategic decision in 2020 to focus on developing and amplifying the work to operationalise the 'social' element within ESG indicators, the ambition being to help facilitate a shift to responsible and sustainable business practices. Using our combined legal and journalism expertise, we set out to support efforts by key stakeholders to address systemic inequalities, including the eradication of forced labour.
As part of this approach, we convened and consulted with more than 100 experts from civil society and the private sector to determine how best to amplify the importance of the 'S' criteria within ESG investing. As a result, in May 2021, we launched a white paper titled, Amplifying the "S" in ESG: Investor Myth Buster.
The journey from concept to reality was such an incredible learning curve and a real testament to the power of collaboration. While I have always been passionate about gender equality, and the need to bring the gender lens and social entrepreneurship to sustainable business practices, it was a remarkable opportunity to learn from, and work with, thought leaders from around the world.
Here's what resonated with me the most:
Addressing the 'S' is complicated, but it is also really quite simple
S issues are complex: They are interlinked and difficult to measure. Nevertheless, it is important to continue discussing how and what to measure through relevant and impactful metrics and indicators. Getting this right will be transformational. However, there is no silver bullet: change will need to come from legislation, behaviour, data, practices, innovation and dialogue.
But the next steps can be quite simple: Learning to swim can take time but getting into the water is an easy and necessary first step. Companies and investors need to move beyond commitments to action. As the Chief Executive Officer of PRI, Fiona Reynolds, wrote: "When investors first began working on climate issues, we didn't have the full data and information either, but that didn't stop us then, and it shouldn't now".
There are important data sets being made available by investor-targeted initiatives led by civil society organisations. These organisations include the Corporate Human Rights Benchmark (CHRB) (part of the World Benchmarking Alliance), KnowTheChain (KTC) (part of Business & Human Rights Resource Centre), and the Workforce Disclosure Initiative (part of ShareAction). This work can and should be scaled up. It will help us all make decisions that have a real, positive impact on people.
It is about people
As much as the debate over the right data to use is fundamental, thinking of alternative business models that put workers and communities' rights at their core will work under any dataset and will truly help us tackle inequality.
There are some innovative and scalable business solutions out there that will ensure companies are resilient to future challenges and upheavals.
The role of lawyers and accountants is key
Professional services are critical in enabling corporate and investor clients to do their part to build a fair and sustainable future. Embracing the objectives of the rapidly changing laws by advising clients accordingly will be one of the key engines to implement change.
If companies are to stay competitive and relevant in a decade from now, they need forward-thinking advisors who can shore up their future.
Overall, the direction of travel for businesses is clear.
Globally, the adoption of the 'S' is no longer voluntary; it is fast becoming mandatory for companies and investors. Getting ahead of this changing legal landscape, meeting increased expectations on social performance, collaborating across sectors, and understanding that this is an opportunity rather than a burden will help to strengthen a society that is fair, free and informed.
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