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The State of Social in ESG

Research

Key findings and recommendations

The pandemic and cultural and socio-economic reckonings that followed have ushered in a new era for the ‘S’ in ESG. In the wake of rapidly evolving social expectations, and in the context of an unprecedented battle for talent, management teams have strived to build more inclusive and human-centric work environments. Most organizations are adapting to the post-pandemic world by offering employees flexibility, increasing their commitments to employee health and safety, and educating their teams about diversity, equity, and inclusion (DEI) and Indigenous reconciliation. Indeed, as these practices become more widely adopted, they may be regarded as new norms that contribute to an organization’s social license to operate. 

 

There remains much work to be done for businesses to manage their exposure to social risks and opportunities, particularly those related to complex and evolving social issues including DEI, Indigenous reconciliation, and human rights.  

1.

The rise of “S” is uneven and so is organizational performance. While organizations have an established body of knowledge and best practices for the traditional elements of managing human capital, organizational responses to complex and quickly evolving social issues – such as DEI, human rights, and Indigenous reconciliation are lagging. These themes represent opportunities for organizations to position themselves as leaders and drive the market forward. 

Recommendation: Organizations seeking to lead on social issues must do so with authenticity. A thoughtful approach to social issues requires organizations to engage with internal and external communities to identify key issues and expectations for short, medium and longterm action. Leading organizations acknowledge that perfection is not the end objective. Rather, leaders demonstrate the courage to make progress on social issues over time, rather than waiting until best practices are defined by others.  

2.

There’s momentum behind a “social risk” lens. Most organizations are either adopting or considering formal oversight of social risks at the top of the house via the board of directors and/or enterprise risk management frameworks. Organizations that are not adopting or exploring social risk governance may fall behind their peers while market leaders set the pace. 

Recommendation: Leading organizations acknowledge that social issues can pose material financial risks, if not proactively identified and managed. Organizations should not wait until risk events occur as the reputational and brand impacts alone can be significant and long-lasting. Leading organizations should proactively apply a social risk lens to all strategic and operational decisions, including the allocation of capital and internal resources. A proactive approach to social risk management will enhance the resilience of companies over the long term, and avoid costly risk events by building trust with internal and external communities.

3.

Getting the table stakes right is critical in the war for talent. Employees assign a high level of importance to the following social issues: training and development, investments in their physical and mental well-being, and DEI commitments. These have become “table stakes” value propositions among organizations, and those who fail to adopt them are gambling with their talent. 

Recommendation: While organizations must consider multiple audiences and issues when developing and communicating their social practices, no organization can avoid human capital issues since all organizations require people to work within them, supply them, and purchase from them. As such, talent acquisition and retention should be a primary focus. Increasing understanding of what matters to current and future employees, and integrating that knowledge into employee engagement, retention and recruitment strategies is key.  

4.

Organizations are missing opportunities for real world impact. From Indigenous recruitment and procurement to diversity targets for management and human rights policies for supply chains, organizations are lagging the most on the actions most aligned with driving tangible social outcomes. Identifying and addressing barriers to progress in these areas is critical for organizations that want to effectively manage their exposure to social risks, tap into opportunities, and create longterm value. 

Recommendation: While organizations must consider multiple audiences and issues when developing and communicating their social practices, no organization can avoid human capital issues since all organizations require people to work within them, supply them, and purchase from them. As such, talent acquisition and retention should be a primary focus. Increasing understanding of what matters to current and future employees, and integrating that knowledge into employee engagement, retention and recruitment strategies is key.  

Our analysis found that while there is momentum toward more mature social practices, there are some clear gaps, for example in organizations’ propensity to act internally versus externally on issues like DEI and reconciliation.  A key upshot is that the actions most aligned with driving tangible social outcomes within organizations and in the real world are those that are the least advanced.  

Our analysis found that while there is momentum toward more mature social practices, there are some clear gaps, for example in organizations’ propensity to act internally versus externally on issues like DEI and reconciliation. A key upshot is that the actions most aligned with driving tangible social outcomes within organizations and in the real world are those that are the least advanced.

Many organizations are striving to adopt best practices in these areas but determining what constitutes a “best practice has been challenging. The primary barrier: a lack of benchmarking data. If companies do not know where they stand, they are unlikely to act.  But when they can see where and how their peers are performing, and can learn from early adopters, that is when real traction can occur. The purpose of this research is to start addressing that hurdle 

The results in Brief

Social Risk Governance: An Emerging Business Norm

Governance of social issues at the highest levels of an organization appears to be an emerging norm for businesses operating in Canada and the United States. The Sustainable Development Goals (SDGs) and the Sustainability Accounting Standards Board (SASB) Standards are the dominant frameworks used by survey participants for analyzing, managing, and reporting on social issues. This is not surprising as the SDGs are so widely supported by the global business community, and investors gravitate towards the SASB Standards due to their focus on materiality.

Integrating Social Risk into Board Governance
Integrating Social risk into enterprise risk management

Human Capital Management: Flexible Work is the New Status Quo

Flexible work models are the new norm for employers and flexible working hours are the top action participants are taking to promote employee mental health and well-being. Further, most organizations are expanding employee engagement and professional development opportunities.

73 %

Investing in professional development opportunities

73 %

Introduced programs to measure and promote employee engagement

A Growing Focus on Employee Health and Safety

Stengthened employee health and safety efforts post-pandemic
79%
Offer physical health perks beyond traditional benefits
70%
Offer mental health perks beyond traditional benefits
76%

Employee health & safety is a growing focus area for organizations in the post-pandemic world. These data support our thesis that the pandemic has ushered in a new era where employers are increasingly focused on their people. Organizations that are not actively reviewing and improving their practices related to employee health and safety risk losing talent to the vast majority that are doing so.

Foundational DEI Practices are Widespread, but Targets and External Assessments are Lacking

Employer DEI Practices
Formal DEI policy or program
68%
Employee education on DEI
60%
Survey to measure workplace inclusion
53%
Set diversity targets for boards
41%
Set diversity targets for senior management
33%
Third-party assessment of DEI practices
21%

While most organizations have taken foundational steps to incorporate DEI into their operations, the actions most likely to drive more tangible outcomes – such as setting diversity targets for boards or senior management – are lagging. Why? Perhaps organizations do not see the social and business value in pursuing actions that likely necessitate more fundamental changes in their operations and related practices. Alternatively, they may see the value but are struggling to move beyond current operations and practices effectively. The likely answer is that both scenarios are at play. This gap may narrow over time as both the business-imperatives and best practices become more apparent and accessible.

More Work to be Done on Indigenous Reconciliation

Employer Indigenous Rights and Reconciliation Practices
Employee education about Indigenous reconciliation
55%
Public support for Indigenous rights
39%
Indigenous talent recruitment programs
26%
Indigenous procurement policies
22%

Similar to DEI, there is a gap between foundational steps, such as employee education, and high-impact actions, such as Indigenous talent recruitment and procurement. It is unclear if this gap is due to a lack of motivation
to go beyond foundational steps or a need for guidance and support
to enable progress on burgeoning reconciliation journeys.

Human Rights Practices Remain Largely Underdeveloped

Employer Human Rights Practices
Has a human rights policy
48%
Extends human rights policy to supply chain
23%
Follows human rights due diligence
24%
Extends human rights policy to investments (investors only)
31%

Considering the pervasiveness of human rights concerns – not just globally but also domestically – organizational human rights practices and policies applicable to employees and suppliers are largely underdeveloped. Many participants are headquartered in North America and operate domestically, which could explain the limited uptake of human rights practices since procurement likely occurs through regional networks. However, in the context of growing human rights legislation, organizations that are not performing due diligence may find themselves exposed to risks or a larger compliance burden if new laws impact their businesses.

Corporate Social Performance Falls Short of High Employee Expectations

There are two dimensions to understanding corporate social performance. First, we can benchmark where and how organizations are focusing their efforts; second, we must understand employee expectations and how employers measure up. While a clear majority of employees in our survey strongly or somewhat agree that their employers are performing well on every dimension of social performance, there is a persistent gap between those performance scores and the level of importance employees place on social issues. The largest importance-performance gaps were evident in employee assessments of physical and mental health support, followed by training.

On every metric, the majority of workers believe their organizations are performing well, with the strongest agreement (Canada: 74%; USA: 75%) that employers are making progress on DEI, and the lowest agreement
(Canada: 59%; USA: 61%) on progress on Indigenous reconciliation.

Notwithstanding generally positive ratings of employer performance, employee expectations are even higher. Between 69% and 86% of employees believe personally in the importance of social performance across every category and see all of these issues as important to their organization’s future success.

Training, mental and physical health, and a commitment to DEI ranked highest in overall importance to employees. Human rights scored highest in the “very important” category compared to all other issues, with mental health coming in second.

Demonstrating a commitment to Indigenous rights and reconciliation scored lowest in importance for all employees. However, participants who identify as Black, Indigenous, or People of Colour (BIPOC) placed significantly more importance on this issue than their Caucasian peers. Among Canadian employees, we see a 10-point difference
in importance (Caucasian employees: 68%, BIPOC employees: 78%). While, in the US, that gap is almost double
(Caucasian employees: 64%, BIPOC employees: 85%).

While Canadian and US employees place about the same level of importance on social issues, Canadian employees marked their employers’ performance lower than American employees on every social metric.

IMPORTANT (NET) CANADA 

Base: All working Canadians (n=1002)

IMPORTANT (NET) USA

 Base: All working Canadians (n=1000)

DOING WELL (NET) CANADA 

Base: All working Canadians (n=1002)

DOING WELL (NET) USA

 Base: All working Canadians (n=1000)

Significantly higher

The importance of social issues to Canadian and US Employees
Creating training and development programs and opportunities for employees
86%
86%
Creating programs or initiatives that support employees’ mental health and well-being
85%
83%
Creating programs or initiatives that support employees’ physical health and well-being
84%
85%
Protecting human rights through its operations, processes, and supply chains
83%
83%
Demonstrating a commitment to diversity, equity, and inclusion
80%
77%
Demonstrating a commitment to supporting the rights of, and the opportunities for, Indigenous peoples, and advancing reconciliation
71%
70%
How well employees believe their employers are doing on social issues
Demonstrating a commitment to diversity, equity, and inclusion
74%
75%
Protecting human rights through its operations, processes, and supply chains
68%
73%
Creating training and development programs and opportunities for employees
65%
71%
Creating programs or initiatives that support employees’ physical health and well-being
63%
71%
Creating programs or initiatives that support employees’ mental health and well-being
63%
71%
Demonstrating a commitment to supporting the rights of, and the opportunities for, Indigenous peoples, and advancing reconciliation
59%
61%

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