Social capital - reporting and measuring

The pandemic has accelerated focus on a company’s social impact. It exposed fissures in the social fabric of society. Women, ethnic minorities, and low-paid workers suffered disproportionately in the fallout from economic lockdowns, while certain segments of society saw higher serious illness and mortality. This galvanised social movements, such as Black Lives Matter, but also saw a renewed focus on well-being and mental health from governments and the corporate sector.

Reporting and measurement remains the trickiest area in building social criteria into a portfolio. It is relatively easy to track and measure carbon output, or plastics, but objective benchmarks for areas such as employee well-being are more difficult. There are multiple frameworks and some disagreement over the criteria. This means it is difficult to compare data or achieve an objective judgement of a company’s performance.

UN SDGs

Nevertheless, policymakers and corporates are starting to work out new ways to disclose and compare social metrics. The UN Sustainable Development Goals have generally been used as a starting point. There are three main SDGs that map specifically to social factors: SDG 3, 5 and 8. It is here that many charities are focusing most of their attention.

SDG 3 focuses on ensuring healthy lives and “promoting well-being for all at all ages”. This includes areas such as reducing maternal mortality and addressing preventable deaths in children. It strives to tackle epidemics, such as AIDS, tuberculosis and malaria. It also seeks to address mental health and well-being, including the prevention and treatment of substance abuse.

SDG 5 covers gender equality. The UN says: “It is not just a human rights issue; it is a tremendous waste of the world’s human potential. By denying women equal rights, we deny half the population a chance to live life at its fullest. Political, economic and social equality for women will benefit all the world’s citizens. Together we can eradicate prejudice and work for equal rights and respect for all.”

SDG 8 is a broad category, encompassing sustainable growth and equal pay, to full employment and ‘decent’ work. It covers universal banking, youth employment, training, labour rights and safe working environments. It also looks to achieve higher levels of productivity through diversification, technological upgrading and innovation, plus a greater focus on high value-added and labour-intensive sectors.

Even though these goals were originally designed for countries rather than corporates, they are being adapted to fit. More recently, the Sustainability Accounting Standards Board (SASB) has mapped accounting rules to the SDGs, so the two sides are coming together.

Other initiatives

The EU has drafted a social taxonomy, designed to build on the environmental one already agreed by member states. This new taxonomy will take time to be approved but is reasonably well-advanced. It considers both the contribution made to social goals from products and services sold by companies, along with the contribution made by the manufacturing process or supply chain. This is vitally important. There is no merit in making socially responsible products from exploitative practices.

At the same time, human capital and diversity disclosures are gaining momentum. Increasingly, investors demand details of gender pay gaps and board diversity and are willing to vote against boards who score poorly. Furthermore, the UK has made it compulsory for companies with more than 250 employees to publish their gender pay gap.

The European Commission is now increasing its consideration on gender. In March 2021, it published a set of pay transparency measures, compelling member states to force reporting requirements on companies with more than 250 employees. Companies will also need to provide all workers with the right to see colleagues’ salaries.

The capitalist system is being redesigned and investors need to stay on the right side of that change. For the time being measurement is poor and inconsistent, but standards are being established. For charities, it is vitally important to start using social metrics and learning from the outcomes, not as a hard and fast measure but as good starting point for further investigation.