Understanding the Social Factors in ESG

*The article in Macedonian language, published by Kapital can be found at the bottom of this page.

It has been challenging not only to set priorities but also to keep the focus on solving the key issues at hand due to the permacrisis or long period of instability and insecurity we have been facing in recent years. The effects and consequences of each crisis intensify, and the list of priorities changes constantly. However, when public policymakers were put in a situation to make decisions where one choice involved being responsible for as many human lives as possible, the importance as well as the necessity, of increased attention to social issues became profoundly evident. Taking into account the strong influence these social issues have on societies as a whole, it is clear that collective action, in which corporate responsibility is particularly powerful, is necessary.

Strategic commitment to advancing social issues has already been integrated into the focus of corporate agendas, especially by large corporations. It is evident that positive practices in that direction will continue since the concept of ESG (Environmental, Social, and Governance) has become increasingly prevalent. Indeed, this concept provides a cohesive approach to the efforts of creating a corporate sustainability strategy. Depending on the values, needs and expectations of key stakeholders and business model, the ESG concept addresses and integrates factors related to the environment, social issues and governance in decision-making processes.

Corporate responsibility for social issues within the ESG framework refers to how a company affects and manages relationships with its employees, consumers, suppliers, as well as the environment in general in which it operates. The central issue is people, both from the aspect of its direct operations, which includes the management of its human capital and its products and services and from the aspect of indirect operations, which includes the consideration of social policies and practices throughout the supply chain, as well as corporate social responsibility. As a result, the goals are aimed at improving the working environment for employees and their skills, protecting human rights, including the fight against modern slavery and child labor, as well as active participation and cooperation with community members in solving issues that affect their well-being.

To successfully achieve these goals, companies establish indicators, the ultimate goal of which is, through their measurement and monitoring, to advance activities in the direction of building robust societies. Some of these indicators include the number of new employees, employee turnover, percentage of employees who have access to career development information, the average number of hours of training per employee, total hours of volunteer work by employees, the total number of individuals who have benefited from a project or campaign, the number of free services or services with drastically reduced prices, the amount of donations given to society, as well as the number of suppliers who have committed to complying with a certain code of business conduct. Also, indicators in the area of social issues include measuring data related to workplace injuries, promotion and advancement of employee health care, gender equality and diversity.

However, measuring these indicators to determine the social impact of corporate activities has its own challenges. The prevailing view is that when it comes to ESG reporting, social issues are the most difficult to measure. Namely, in addition to the standard challenges related to ESG reporting, the complexity of social issues arises predominantly from the challenge of defining generally accepted and unified standards for measuring social impact. An additional challenge is ensuring the involvement of stakeholders in supply chain processes. Nonetheless, as complex as it is, it is not impossible. In fact, many companies proactively implement factors related to social issues into their strategies and decision-making processes encouraged by the value that is created.

In addition to boosting business opportunities and improving employee productivity, as well as building a powerful and reliable corporate brand that is recognized by all stakeholders, attention to social issues is particularly significant for creating resilience and preventing certain risks. For example, taking care of employees and consumers minimizes the risk of labor strikes or consumer protests that can seriously affect profitability and reputation. Policies related to supply chains might minimize exposure to various conflicts and crises, thereby contributing to enhanced stability in operations.

Some of the corporate practices carried out by the companies that are part of the ESG Committee in the American Chamber of Commerce in North Macedonia related to social issues include initiatives for educating young people, caring for vulnerable and older population categories, building models for active participation of company employees in solving social issues, as well as supporting cultural and sports events and activities that are of public interest. Also, in terms of employee care, activities include improving their physical and mental health, as well as creating opportunities for improving their skills. Supply chain activities typically include the creation and distribution of a supplier code of conduct that ensures adherence to ESG standards in business operations.

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