Introduction:

ESG (Environmental, Social, Governance) initiatives have become integral to corporate responsibility and long-term value creation. While environmental and governance aspects are often more straightforward to measure and manage, the social aspect presents unique challenges. In a survey of over 600 companies, as highlighted in Beth Bovis's article in the Harvard Business Review dated November 27, 2023, the difficulties in setting targets and measuring progress in social initiatives become apparent.

Defining the Social Aspect:

The definition of "social" within ESG lacks consistency. It broadly encompasses a company's activities and programs supporting the well-being of employees, supply chains, and communities at large. This includes community impact measures, employee wellness programs, diversity, equality, and inclusion initiatives, among others. Consequently, assessing the effectiveness of a company's social strategy becomes complex.

Challenges Identified:

The Kearney Index of Social Performance (KISP), a recent survey of 602 companies, revealed significant challenges in implementing effective social strategies. Less than half of the surveyed companies measured the economic impact of their social projects, and only one-third sought external expert assistance. In the specific area of diversity, equity, and inclusion (DEI), 27% of companies reported having no strategy, and 20% indicated only ad hoc strategies.

Lessons from Social Impact Leaders:

While challenges are widespread, 5% of companies emerged as leaders in social strategy, scoring 90+ out of 100 on the KISP index. Here are five lessons from these social impact leaders:

• 1. Alignment with Corporate Strategy: Successful social initiatives align with existing corporate strategies, leveraging the company's knowledge, contacts, and reputation.
• 2. Stakeholder Input: Actively seek input from external stakeholders, especially communities that initiatives aim to benefit. Collaboration with municipal leaders enhances the value of considered initiatives.
• 3. Multidimensional Approach: Leading companies adopt a multidimensional approach beyond charitable contributions, incorporating in-kind donations, volunteer work, and pro bono offerings.
• 4. Consultation with Experts: Approximately 20% of survey participants consulted external experts for social projects. Companies engaging with NGOs and third-party consulting firms reported almost five times higher economic impact from their programs.
• 5. Effective Measurement: While over 50% of surveyed companies tracked the number of beneficiaries and their alignment with UN Sustainable Development Goals, only 20% measured the actual economic impact. The article emphasizes the importance of the Social Return on Investment (SROI) metric for measuring the economic value created by social initiatives.

When we follow the recent ESRS reporting guidelines, we actually see very specific instructions on what and how the companies should measure to reflect S area of ESG. The "Wytyczne do raportowania ESG" provided by GPW (Warsaw Stock Exchange) and EBOiR (Research Institute) outlines specific guidelines for reporting on various ESG aspects. Here, we will focus on the social dimension, particularly in the area of employment policies. The GPW report emphasizes the importance of transparency and commitment to diversity, employment stability, work-life balance, reintegration policies, and equality in remuneration. Let's delve into the recommended metrics and how to measure them:

S P8: Human Rights Policy

Definition:

The Human Rights Policy is a formal document that defines a company's stance on respecting human rights.

Measurement:

• Disclose if the company has implemented a human rights policy covering both internal operations and external partners.
• The policy should reference international standards and legal norms, such as the International Bill of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.
• Clearly outline the company's expectations regarding employees and extend these expectations to suppliers and business partners.
• Describe the implementation process and ensure internal and external communication of the policy.

S P9: Human Rights Due Diligence Procedures

Definition:

Human Rights Due Diligence Procedures involve actions to identify potential and actual risks of human rights violations and steps taken to eliminate them.

Measurement:

• Disclose whether the company has implemented human rights due diligence procedures to effectively monitor the risk of human rights violations across the value chain.
• Procedures should include identification of internal business activities at risk of human rights violations, mapping of suppliers/raw materials with high human rights risk, assessment of new suppliers for human rights risk, inclusion of human rights clauses in supplier contracts, supplier audits and monitoring, and corrective actions for identified non-compliance.

S P5: Equal Remuneration Indicator

Definition:

The Equal Remuneration Indicator measures the difference between the average earnings of men and women in the company during a reporting period.

Measurement:

• Calculate the equal remuneration indicator using the formula: (A – B) / B x 100, where A is the sum of annual earnings of men employed full-time, and B is the sum of annual earnings of women employed full-time.
• The obtained value indicates the percentage by which men's average earnings exceed (or fall short of) women's average earnings in the company.

S P7: Employee Turnover Ratio

Definition:

Employee turnover ratio measures the number of employee departures from the workplace during a reporting period.

Measurement:

• Disclose the voluntary employee turnover ratio (%) calculated by dividing the number of employees who left voluntarily during the reporting period by the average number of all employees during that period.
• High turnover rates may signal dissatisfaction with the work environment, compensation, or health and safety conditions.

Additional Considerations:

• Specificity and Context: Provide detailed information about the company's policies, actions, and results. Contextualize the data within the industry and geographical location to enhance the relevance of the metrics.
• Trend Analysis: Include data from the last three years to facilitate trend analysis and enable stakeholders to assess the company's progress over time.
• Alignment with International Standards: Ensure that the reporting aligns with established international standards and frameworks, such as the UN Guiding Principles Reporting Framework and the Global Reporting Initiative (GRI).

Conclusion: As companies continue to invest in ESG initiatives, the social component is far from a mere add-on; it represents a valuable investment in bettering lives and creating long-term economic value. By addressing the challenges, learning from social impact leaders, and implementing effective measurement strategies like SROI, companies can maximize the impact of their social initiatives and contribute positively to society. Additionally, by following these recommended metrics and measurement approaches, companies can enhance their transparency, accountability, and commitment to social aspects within the ESG framework.