What is the Social part of ESG?

The Social part is concerned with the quality of the relationships between your business and all stakeholders, including employees, customers, suppliers and affected communities. The social disclosure requirements under the new Corporate Sustainability Reporting Directive (CSRD) are set out in 4 separate draft standards issued by EFRAG: 

• Own workforce;  
• Workers in the value chain;  
• Affected communities; and  
• Consumers and end-users.  

These standards reflect the UN Guiding Principles on Business and Human Rights (UNG), the OECD Guidelines for Multinational Enterprises, and other internationally recognised principles and frameworks.  

Businesses must perform a thorough assessment to identify (i) those areas where their actions have a material impact on stakeholders, and (ii) areas presenting material risks or opportunities to the business. For each identified material impact, risk or opportunity, businesses will need to disclose information on their policies, actions and metrics – for certain companies the standards require disclosures for high-impact areas regardless of materiality.  

Workers 

The standards require disclosure of processes to engage with own workforce and workers in the value chain and how their interests, views, rights and expectations inform the business’ strategy and business model. Potential material areas to be assessed include topics such as:  

• working conditions;  
• social partner involvement; 
• channels to raise concerns (whistleblowing);  
• collective bargaining;  
• adequate wages; 
• equality;  
• non-discrimination;  
• diversity and inclusion;  
• work-life balance; 
• human rights;  
• gender pay gap; and  
• people with disabilities

Communities 

Companies have an impact on communities, either directly linked to the company’s own operations, products or services or through its business relationships. Disclosures should explain the approach to identify and manage any material actual or potential impacts on affected communities and processes for engaging with those communities. This includes time-bound and outcome-oriented targets for reducing negative impacts, advancing positive impacts, and managing material risks and opportunities related to affected communities. 

Consumers and end-users 

Companies must consider how their strategy and business model impacts consumers and end-users, including those in the downstream value chain – for example, providing products that harm if overused or sales-maximising incentives that put consumers at risk. Disclosures are aimed at enabling users to understand material impacts on consumers and end-users, as well as how dependencies on consumers and end-users may create material risks or opportunities for the company. 

Far from being merely a compliance process, the social standards set out a blueprint for companies to create a sustainable workplace for all stakeholders while strengthening their business model.  

This is the Social in ESG. 

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