With a 24-hour news cycle and nonstop social media, publishing poor environmental, social and governance (ESG) performance can quickly lead to a negative impact on a company’s reputation. In the current socioeconomic landscape, companies are increasingly judged on their sustainability performance as indicated in their ESG disclosures.
Often though, when it comes to ESG, the social dimension is neglected or is evaluated using indicators that are derived from economic or environmental assessments. But by conducting a social sustainability assessment (SSA), companies can more thoroughly evaluate their activities and measure their impacts on society. An SSA examines issues affecting the people within the organization itself, such as the state of working conditions, or the promotion of diversity, equity and inclusion. An SSA can also look at how organizations treat supply chain workers, the people in their local communities and even their customers.
On the product level, a type of SSA known as a social life cycle assessment (S-LCA) can measure the social impacts of a product from its inception through to its disposal. For example, findings could inform the selection of suppliers for product lines and reveal opportunities for improving social performance along product life cycles.
How Social Sustainability Assessments Benefit Your Business
Credibility on social issues will be crucial to remaining competitive in the market. On an organizational level, an SSA can aid management decision-making regarding social topics within your company. More broadly, SSAs can also be a differentiating factor for businesses looking to attract top talent. The best candidates are more inclined to work for a company they can feel good about and resonate with.
Conducting an SSA provides many benefits, including:
Identification of Social Risks and Opportunities
An SSA can help you identify risks and opportunities within your value chain. Assessing the social impacts within your own organization primarily looks at the effects on your workforce, as well as on your customers and business partners. There is an obvious business case for evaluating interactions with these stakeholder groups. Internally, assessing the social impacts intersects with existing functions such as human resources and customer success management.
An SSA will also likely evaluate impacts on the communities or regions where the company operates. This provides avenues for further stakeholder engagement and the promotion of corporate social responsibility within the broader society.
To get a better idea about how SSAs can impact ex-ante decision-making—decisions based on forecasts or predictions—consider a manufacturer intending to expand transnationally. The company will probably deliberate over various locations for setting up the new factory. Decision-makers will also have to take numerous environmental, economic and social aspects into account. Considerations include the physical resources needed to set up the facility, hire staff and management, and to qualify suppliers.
Certainly, cost is a chief consideration, but an organization building a long-term sustainability strategy would also consider aspects other than profits. The company should ask: “Where can we do the least damage to our surroundings? Where can we contribute positively to society?” SSAs can be a powerful tool on which to base the decision, namely by identifying the opportunities for social good.
Traceability and Value Chain Due Diligence
Taking a life cycle perspective, conducting an SSA at the product level has indispensable benefits. An S-LCA provides a broader look at a product’s entire value chain, breaking down intricate arrangements to their core processes. It allows you to gain greater insights into your organization’s suppliers, going further than the first tier.
This enables you to uncover potentially sub-optimal social conditions within your company’s supply chains. An S-LCA reveals real opportunities for improvement and collaboration with value chain actors. It can provide transparency on where purchased goods and services are coming from, tracing them back to raw-material extraction.
Leveraging the knowledge that the SSA provides, you can then inform and create a targeted strategy for achieving sustainable development. This is accompanied by continuous improvement in social performance.
Specific key performance indicators (KPIs) directed by the SSA methodology can be developed and integrated into overall corporate targets. These KPIs can also be applied to key roles across the entire organization.
Reporting and Communication
The need to report your ESG performance acts as a significant motivator for conducting an SSA. The insights from the SSA can be published in your organization’s annual report, in accordance with leading frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and the EU Corporate Sustainability Reporting Directive (CSRD). Companies can also include those insights as part of their communication strategy with business partners and consumers.
Meeting Regulatory Requirements
Beyond providing traditional business benefits, an SSA can help an organization earn its social license to operate, which is achieved once society regards the activities of a business enterprise as legitimate. Typically, businesses must build their social license to operate over time. But any business activity perceived as harmful can interfere with the social license to operate and cause severe reputational damage.
Maintaining the social license goes hand in hand with ESG reporting, which documents corporate sustainability performance. Since the early 2000s, there has been a steep rise in ESG policy interventions worldwide. One recent example is the CSRD, greenlit in November 2022. Under this directive, approximately 50,000 companies will be required to provide data on their impacts on society and develop targeted strategies to ameliorate risks beginning with the 2024 financial year.
Cumulative number of ESG policy interventions worldwide through Q1 2022.
Achieving Greater ESG Transparency and Credibility
Understanding the due diligence requirements of regulatory directives such as the CSRD is the first step in evaluating the social dimensions of business operations. An SSA can foster improvement and provide benefits along the organizational and operational levels. Additionally, with an S-LCA at the product level, companies and stakeholders gain visibility on the social performance of products throughout their life cycles.
With the help of an SSA, employees, business partners and the public can gain an objective, quantifiable evaluation of the company’s social impact. This type of social disclosure can also guide organizational strategy and decision-making, leading to greater ESG transparency and credibility.