The ‘superpower’ of doing good

A DECADE ago, ESG (the environmental, social and governance elements of a business) was just beginning to be understood by corporations. It was only an incidental topic of conversation at management meetings and corporate gatherings.

Fast forward to 2022, the pandemic has propelled ESG to the forefront of corporate consciousness, making it a focal point of business. Today, it is considered by investors, policymakers and other stakeholders to be the essential elements that ensure the sustainability of a business.

Of the three elements of ESG, the ‘S’ (or the social) dimension is probably the element that is least prominent. As the ‘middle child’ in the tri-letter acronym, the ‘S’ is not well understood and often ignored, even as much attention is lavished on its other two ‘siblings’ – ‘E’ (environmental) and ‘G’ (governance).

What is the ‘S’?

The ‘S’ component of ESG is broad and covers the way companies interact with their employees and the communities in which they operate. It includes issues affecting employees, such as the company’s health and safety track record; its policy on diversity, equity and inclusion; and the relations between management and workers. External issues that fall under this umbrella include the company’s relationship with the local community, whether its suppliers use child labour, and matters as diverse as product safety.

This ‘S’ element has, at times, also been expressed in the context of a corporation’s purpose. More on this later.

How is the ‘S’ measured?

As with most ESG metrics, investors and independent ratings agencies typically assess social factors based on the financial risks. Some risks are evaluated with qualitative questions, for example, whether and to what degree a company tracks human rights abuses in its supply chain. Other factors, such as the ratio of female and male employees at the senior levels of the company or the percentage of racially diverse workers, are measured quantitatively.

Contrary to common perception, the ‘S’ in ESG is not too fuzzy to assess in terms of investment risk and opportunity. Standards organisations around the world have been working hard to determine the disclosure approach for the ‘S’ element, solidifying it with greater definition and specificity -- like the approach that applies to the E and G components. One such organisation, the Sustainability Accounting Standards Board (SASB), has produced ESG measurement and disclosure methods tailored to 77 major industries ranging from consumer goods to mining using inputs from both investors and industry players like Coca-Cola, Nike among others. SASB’s social pillar indicators (which potentially have material financial impact on a company) include factors such as employee health and safety, employee diversity and inclusion, and community relations, just to name a few.

The SASB standards are increasingly being adopted by corporations and investors alike. In Canada, the top 8 pension funds representing about C$1.6 trillion in assets under management (AUM) released a joint statement in November 2020 urging companies and investors to provide consistent and complete ESG information. The adoption of common standards enables stakeholders to compare “apples with apples” when assessing investment risks and opportunities across organisations.

The assessment of the ‘S’ element translates into scores that are closely tracked by the analyst community, given the financial co-relation: For example, bond issuers with the highest ‘S’ scores show markedly higher excess returns than those with the lowest scores. Likewise, bond issuers in the top tercile of social scores have tighter spreads than issuers in the bottom tercile. Consequently, many institutional investors that track the ‘S’ element in organisations see social responsibility as a factor that mitigates the incidence of worker strikes or workplace accidents, while measuring a corporation’s role and purpose in the communities they operate in.

Corporate purpose

In a recent McKinsey study, it is estimated that 85 per cent of companies have a purpose statement. However, these are often fluffy statements that do not reflect any specific business initiatives. For purpose statements to be meaningful (and impactful), developing a purpose with an ESG focus is a business exercise that requires specificity. An example of a corporation that has done this well is PayPal. Its stated purpose is “to democratise financial services to ensure that everyone, regardless of background or economic standing, has access to affordable, convenient, and secure products and services to take control of their financial lives”.

Flowing from this purpose statement, the company focuses on its technological vulnerabilities like cybersecurity and protecting users’ financial data. Correspondingly, the company has also established clear platforms that are focused on its employees, social innovation, environmental sustainability, and responsible business practices, with specific commitments that are clearly articulated and measurable, and for which people are held accountable for its attainment.

In Singapore, the Alliance for Action on Corporate Purpose (led by the National Volunteer and Philanthropy Centre, NVPC) has taken steps towards having more purpose-driven companies. As of July 2022, 46 progressive corporates have signed up to this initiative, using corporate purpose as the foundation on which their company’s vision, mission and strategies are built.

At its core, this is an effort designed to encourage corporations to generate profit with purpose – contemplating how best a company can have an impact on profits, people, and the planet.

The challenge is for corporations to embrace simplicity and clarity in their purpose statements, crafted to be easily understood, both internally and externally. In this respect, the purpose statement is a way of embedding witin a corporation’s DNA the necessary “genes” for doing good.

Corporate ‘Superpower’

To encourage the adoption of a mindset for doing good that goes beyond mere financial performance, the NVPC launched the Champions of Good award in 2017, a national recognition initiative under the Company of Good. The award recognises organisations that are exemplary in doing good and which have also been a multiplier by engaging their partners and stakeholders on a collaborative journey.

To date, 97 Champions of Good organisations have been recognised and the aspiration is to grow the community of champions over time and propagate the purpose of doing good to other fellow corporates -- in so doing achieve the vision of making Singapore a City of Good.

The activities of these champions differ – from ‘food for good’ companies and volunteers that contribute what they are best placed to offer, be it funds, meals or the distribution logistics, to helping marginalised women rise above their circumstances, to fighting stigma that is associated with mental health persons in recovery and re-integrating them back into the workforce. The journeys are different, but the goal is the same – corporations doing good in the community.

Put simply, this is about a corporation’s vision to build a business doing good, that impacts the lives of its employees and their families, giving back to the community; and in so doing ensuring its continuing relevance in the communities it operates.

Paradoxically, this emphasis on the ‘S’ element (often mistaken as applying only to not-for-profit organisations) does produce financial profitability. Examples abound of successful for-profits companies that have taken this path. The Australian toilet paper firm Who Gives A Crap is one such corporation. Established in 2013, their corporate purpose of doing good flows from the commitment to donate 50 per cent of their profits to help build toilets and improve sanitation in the developing world.

Thus far, the company has donated more than A$10 million to doing good in the sanitation space.

For enlightened corporations, demonstrating their purpose (and the associated ‘S’ element) reflects their relevance to the communities they operate in. This critical connection is validated by the findings in the May 2022 report by the Business Purpose Commission for Scotland.

Perhaps more significantly, by doing good, corporations unwittingly (and inevitably) develop a valuable “superpower” – one that positions them for success by setting them apart in the highly competitive business world.

For astute leaders, this is clear: Doing good makes great business sense.

Jeffery Tan is the group general counsel and chief sustainability officer of Jardine Cycle & Carriage, a member of the Jardine Matheson Group. He is also CEO of mental health charity Jardine MINDSET and serves on the boards of the Singapore International Chamber of Commerce, City Mental Health Alliance Singapore and the Global Guiding Council of One Mind At Work.

Jardine MINDSET was recently recognised as a Champion of Good for a third time by the National Volunteer & Philanthropy Centre for its work in the mental health space.