The Future of the 'S' in ESG

Until the world was hit by the Covid-19 pandemic, investor attention had been placed largely on addressing the 'E' (for "environmental") and ‘G’ (for "governance") in ESG – while the 'S' (for "social") fell behind. Issues such as climate change, biodiversity loss, water and waste management, board composition, executive remuneration and bribery were of top concern. Then, the coronavirus outbreak and the global movement for racial and ethnic equity gave investors a new lens to consider social risks, as the health and safety of employees, customers and suppliers, diversity & inclusion at all levels of society, human rights concerns, and other social issues became an immediate priority. How companies responded to key ESG issues during the Covid-19 crisis was systematically linked to stock performance and corporate resilience, as research by State Street Associates and Prof. George Serafeim showed. The business case for proactively integrating social issues into the investment process continues to strengthen.

In this briefing note, we explore some trends that have moved social factors further up the action agenda of investors – from increased investor awareness to record-breaking social bond issuances. We identify six key challenges for investors navigating social issues and take a closer look at struggles with data resulting from the lack of standardisation. We provide insights on how some of the world’s largest institutional investors are currently addressing social issues and offer an outlook on what the future holds: more standardisation, a focus on social impact data, systemic solutions, more social regulations affecting investors and companies as policy actors.

In addition, we put a spotlight on human rights and explore how investors can protect and respect human rights through investment processes.