What is the 'S' in ESG?

The 'S' stands for 'social'; this element of ESG is growing in importance for companies and their stakeholders, such as regulators, investors, employees, and consumers. S&P defines the 'S' as 'the social factors that pose a risk to a company's financial performance.' As a rating agency, S&P is naturally focused on risks that could potentially impact a company's ability to meet its financial goals. So, while the S&P definition is a clear one, many argue that it focuses too much on downside risks and not enough on the positive benefits for companies embracing the 'S'. Indeed, some ESG experts say that the S&P definition isn't useful for equity investors, who want to be able to identify companies with potential upside because of the way they engage with 'S'.

What are the key components of social purpose?

There is a wide range of topics that could be a part of the social component of ESG - what should be included is still the subject of debate, and so this is not yet standardised. However, some topics that come up regularly can be classified into two categories: internal to the company and external to it.

How does ESG's social element impact firms?

Taking the right social stance on key issues can deliver substantial benefits for a company. For example, Walmart became more attractive to investors and consumers alike when it announced that it would restrict the types of firearm ammunition that it sells, according to S&P Global Market Intelligence. Two of the company's stores had experienced shootings - and mass shootings are a highly political issue in the US. The move to restrict sales reduced the potential for reputational damage that selling ammunition posed to Walmart's image.

What must companies disclose about ESG's 'S'?

There are some social elements that companies have to disclose - either to regulators or to the public - under the rules that apply in some jurisdictions. Examples of these include: - Specific ESG data, such as what the EU's Sustainable Finance Disclosures Regulation (SFDR) requires - DEI statistics, such as gender pay gap reporting - Bribery & corruption policies - Modern slavery policies and due diligence practices, for example, under Germany's Supply Chain Due Diligence Act - Health & safety statistics - Product safety recalls - Data privacy breaches, such as under the EU's General Data Protection Regulation (GDPR)

Do companies make voluntary ESG disclosures?

Yes, many companies are now choosing to make additional public, voluntary disclosures, often in line with a particular standard it has adopted. These are usually a mix of quantitative and qualitative elements. For example, a company may publish quantitative statistics about the diversity of its workforce or the equity of its compensation structure. Or it might put robust data about its health & safety track record or financial amounts of donations to community charities in its annual report.

Which frameworks can firms use for disclosures?

There are many different frameworks available for companies to adopt for voluntary social element reporting, including: - UN Global Compact - Sustainable Development Goals (UN SDGs) - Global Steering Group for Impact Investment (GSG) - UN Guiding Principles Reporting Framework (UNGPRF) - World Benchmarking Alliance (WBA) - Global Reporting Initiative (GRI) - Sustainability Accounting Standards Board (SASB) - Impact Reporting and Investment Standards (IRIS) - World Economic Forum (WEF)

How do investors get social element data?

Investors often obtain much of their information directly from the companies, but they also supplement it with various sources. These can include: - Government websites and databases - Regulators - Rating agencies - Commercial databases and alternative data sources - News sources - Social media and social media analysis However, this variety of information sources can be more confusing than enlightening. For example, analysis by rating agencies and other analysts can differ widely in methodology, and it can be difficult to verify the claims made by individual companies.

What is 'social washing'?

Most people will have heard of the term 'greenwashing' for Environmental issues - disinformation disseminated by an organisation to present an environmentally responsible public image. Social washing is the same type of activity conducted by companies that want to falsely present themselves as socially responsible when their underlying activities do not match this stance.

How can compliance teams aid in social strategy?

Compliance teams can provide important information and even play a key role in shaping the social element of a company's ESG programme. Key ways compliance can contribute include: - Identifying the social themes that touch the company from a compliance point of view - for example, bribery & corruption, anti-money laundering, and health & safety - Creating a comprehensive list of existing compliance requirements in these areas that the company must comply with, from legislation, regulation, and industry standards - Performing a gap analysis to better understand where the company may not meet existing demands, where it meets those demands, and where it may potentially exceed them - Helping the company to understand what it needs to do to meet existing requirements, so the company is fully compliant - Working with teams across the company to identify ways the organisation could go beyond existing compliance requirements - without impinging on other requirements - Developing, in collaboration with other teams, controls to improve social elements and metrics to track performance alignment to social element goals - Monitoring social element programme adherence and regularly reporting to the business, senior management and the board on those factors, as well as to any special ESG team that may exist.

ESG Data Guide | Management, Security and Analysis

Effective Environmental, Social, and Governance (ESG) initiatives rely on robust data management. From collecting accurate metrics to ensuring data security, businesses must adopt best practices to meet reporting requirements, safeguard sensitive information, and support ESG goals.

This guide highlights key strategies for managing ESG data securely and efficiently, with a focus on analysis tools and privacy considerations.

The importance of ESG data management

Data management underpins the success of ESG initiatives. Accurate, reliable data is critical for:

Measuring progress: Tracking performance against ESG targets like carbon reduction, diversity, and governance improvements.
Building stakeholder trust: Transparent reporting demonstrates accountability to investors, regulators, and customers.
Ensuring compliance: Meeting legal obligations, such as the EU Taxonomy or SEC climate disclosure rules.

However, managing ESG data comes with challenges, including data silos, security vulnerabilities, and inconsistencies across reporting frameworks.

Key criteria for ESG data collection & management

Centralise data in an ESG database

Consolidate all ESG-related metrics into a single database to improve accessibility and consistency. An ESG database allows seamless integration of environmental, social, and governance data from diverse sources, enhancing reporting accuracy.

Ensure data quality

Standardise data collection processes across the business to minimise any errors or misalignment. Also, make sure to plan and perform regular audits to verify the accuracy and completeness of data.

Automate data collection

Use automation to streamline the capture of key metrics, such as carbon emissions and energy usage. Automation reduces manual effort while also reducing the margin for human error which improves data reliability.

Align with reporting standards

Follow recognised ESG frameworks to ensure compliance and comparability. Frameworks like GRI and TCFD provide guidance on key metrics to report. Make sure to read up and find one that works for you and your organisation.

What tools are needed to overcome ESG challenges?

ESG software can help manage and streamline data gathering and analysis. The best platform for your business depends on individual requirements and the industry you're part of. We offer five core tools that form the basis of our Compliance Portal.

1. Managing ESG policies

Our policy hub tool provides a powerful solution that enables businesses to create, update, approve, and communicate the values, behaviours and ethics that define their culture. It’s a one-stop data collection and management tool that automates processes and demonstrates corporate responsibility and compliance to auditors, regulators and stakeholders.

2. Training employees on ESG

Once you have an ESG policy in place, it's essential to ensure employees understand it and that their behaviour aligns with it. Our customisable courses are updated throughout the year, ensuring users have the latest and most relevant information.

3. Delivering ESG compliance management

Our digital declarations tool automatically collects and tracks employee disclosures like conflicts of interest and outside business interests, simplifying and streamlining the process for you. Moreover, the solution centralises data, enabling efficient analysis and the creation of audit-ready reports.

4. Implementing an ESG strategy

Gathering employee feedback is an important part of any ESG strategy, helping identify risks and knowledge gaps. Our customisable digital survey tool allows companies to collect ESG data and monitor topics like diversity, inclusivity, cybersecurity and well-being.

5. Maintaining ESG compliance registers

In line with social responsibility and initiatives, companies can use a gift register to track charitable donations, volunteering, fundraising as well as community and sustainability projects. Our efficient compliance registers tool allows organisations to manage events and actions in one place, analyse data and create audit trails.

Analysing ESG data effectively

Analysis is a critical step in transforming raw ESG data into actionable insights. Businesses should focus on:

Identifying trends - Use historical data to understand patterns and progress over time.
Benchmarking performance - Compare ESG performance against industry peers to identify areas for improvement.
Supporting decision-making: Provide leadership with insights to guide strategic planning and resource allocation.

A robust ESG database supports comprehensive data analysis, enabling organisations to uncover correlations and make informed decisions. By eliminating data silos, companies can gain a holistic view of their ESG impact.

Prioritising ESG data security and privacy

With the rise of ESG reporting, organisations must address data security and privacy concerns. ESG data often includes sensitive information, such as employee demographics, supplier details, and environmental metrics. Best practices for ESG data security include:

Implement strong cybersecurity measures

Use encryption and multi-factor authentication to protect ESG databases.
Conduct regular vulnerability assessments and penetration testing.

Comply with data privacy laws

Align data management practices with GDPR, CCPA, and other privacy regulations.
Limit access to ESG data based on role-specific permissions.

Monitor data usage

Track who accesses ESG data and for what purpose.
Implement safeguards against unauthorised use or sharing of information.

Regularly train employees

Provide ongoing training on data security and privacy best practices.
Raise awareness about the importance of protecting ESG data.

Integrating ESG Data into business strategy

Data-driven ESG initiatives provide significant benefits for businesses. By embedding ESG data into strategic planning, organisations can:

Drive innovation: Use insights to develop sustainable products and services.
Enhance risk management: Identify and mitigate environmental and social risks.
Increase stakeholder engagement: Demonstrate commitment to transparency and accountability.

An ESG database ensures that data remains a core component of strategic discussions, fostering a culture of sustainability and continuous improvement.

Want to learn more about ESG compliance?

We’ve created a comprehensive ESG Policy Guide to help businesses navigate the complexities of ESG compliance.

We also have 100+ free compliance training aids, including assessments, best practice guides, checklists, desk aids, eBooks, training presentations, and compliance e-learning modules.

Guide to ESG Data Management, Analysis & Security

The importance of ESG data management