Putting the spotlight on ‘S’ in ESG

[SINGAPORE] If one sits on the sustainability team in a company, and focuses only on the “E” in “ESG”, then he is not talking about environmental, social and governance issues holistically, said Patrick Shaw-Brown, CEO of Impactt, a consultancy that specialises in ethical trade and human rights.

“And I think that a lot of the conversations have focused on environmental goals,” said Shaw-Brown at a panel discussion during the 17th UNGCNS Summit on Wednesday (Oct 8).

He added that while social goals have tended to be ignored, “we’re starting to see some progress”.

Concurring, fellow panellist Sheela Veerappan, senior sustainable investment director at Aberdeen Investments, said clients are increasingly looking at building portfolios that not only capture financial returns but also those with dual objectives, where social elements also come into play. “This… presents a lot of opportunity, particularly for listed corporates out there,” she said.

Veerappan, who also heads the Asia Pacific Sustainable Institute at Aberdeen Investments, added that there are frameworks and associations such as the Sustainability Accounting Standards Board that are pushing for the better disclosure of material social issues.

Natasha Latiff, an international human rights lawyer, said reporting the “S” in ESG is also important for businesses. “Superficial ‘S’ reporting not only undermines investors’ ability to make informed decisions but also raises red flags that the company has not undertaken robust due diligence to identify human rights risks material to its business,” she said.

Veerappan said that, for instance, while a company may have a “really glossy” diversity, equity and inclusion brochure and policy, misalignments may appear when looking at the company’s employee turnover. “We start questioning ourselves… How will (it) then impact the operating costs of that company or the asset? Because it’s very costly to hire and retrain your staff.”

Themed “Beyond Compliance: The Value of Rights, Trust & Resilience”, the panel discussion also touched on the importance of the supply chain.

Shaw-Brown said there is a need for businesses to include their supply chain as part of their social goals, considering that it is often where companies can have the biggest social impact.

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Latiff noted that ANZ was implicated in serious human rights abuses after financing a Cambodian sugar company responsible for forced evictions, land grabbing and child labour. ANZ later acknowledged its role and compensated the victims, marking a landmark case of financial institutions being held accountable for their clients’ human rights impacts.

But Shaw-Brown admitted that social measurement “is a tricky issue”.

Chan Sue Meng, deputy director of sustainability and capability building at UN Global Compact Network Singapore, said that barriers preventing meaningful social disclosure include the lack of a common model for mapping multifaceted relationships between business and finance activities and outcomes for people. Another obstacle is the absence of consistent and comparable indicators and metrics.

Shaw-Brown added that it is important to not get distracted by measurement itself, but to generate momentum and action on the social aspect, as “there needs to be something to measure”.