ESGiQ Right Arrow The Social Component of ESG

The Social Component of ESG

calender Last Updated: May 12, 2021

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The Social component of ESG addresses the way in which organizations manage their relationships and foster their reputation when dealing with employees, vendors and suppliers, customers, and the broader communities where they operate. 

The social criteria within ESG considers the way on which organizations manage: 

  • labor relations
  • diversity and inclusion issues
  • health and safety conditions
  • human rights and labor standards when dealing with their own employees, as well as with third-party suppliers, customers and the community at large 

A recent report by the European Parliament has called for the adoption of binding EU law to companies are held accountable and liable when they are deemed to cause or contribute to human rights, the environment and good governance. The European Commission is expected to present legislation further to the report later this year. 

Various legal requirements already exist and require organizations to disclose information on their practices and progress regarding these issues. For example, the EU’s Non-Financial Reporting Directive require certain large companies to publish information regarding implementation of policies relating to: 

  • environmental protection
  • social responsibility and treatment of employees
  • respect for human rights
  • anti-corruption and bribery
  • diversity on company boards

Similarly, legislation in countries around the world all include requirements regarding the impact of an organization’s operations and its supply chain. As an example, the UK’s Modern Slavery Act 2015, require organizations to prepare annual statement relating to slavery and human trafficking and include information relating to: 

  • the organization’s structure, its business and its supply chains
  • its policies in relation to slavery and human trafficking
  • its due diligence processes in relation to slavery and human trafficking in its business and supply chains
  • the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk
  • its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate
  • the training about slavery and human trafficking available to its staff

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