The ‘S’ and ‘G’ in ‘ESG’ – help needed from the UN!
There is ever increasing (finally!) attention towards the social and governance aspects of ESG in the private sector, but the ‘how to’ is missing
1 Jul 2022

Private sector actors who claim to be sustainable and work towards the realization of the SDGs should strive to respect, promote and implement good standards in its practices, even when operating in a State whose policies violate international law. The company may have little influence over such governmental policies. However, it should at a minimum refrain from endorsing or supporting the particular policy/activity that violates the right, and this includes instances where the government may be acting to protect the company’s interests such as with public security clamping down on human rights defenders, or protesters who are protesting against the company’s operations/project. This also includes having internal policies that respect and implement international standards with processes in place that actually address potential wrongdoing.

One area that is of concern in the private sector is often that the social benefit cannot be measured or there are no valid indicators, but in the multilateral world, UN agencies have operated with human rights indicators for their results-based reporting for a decade or more, and the social element of sustainability really is the respect for and realization of human rights.

Indicators related to enrolment rates for school-age children — or children who have been in an exploitative situation before and are now in a vocational training program, on the number of employees with access to health care or social security, and indicators on the number of court cases against a firm, the time frame for implementation and coverage of policies relevant to sustainability internally, people being paid a living wage (or not), workers with health insurance, the proportion of employees who are members of minorities or are women, and the incidence of complaints of, for example, pollution or unjust deduction in wages, are all examples of quantitative indicators which can be used to measure the impact on society.

In many cases a specific example of abuse — or good practices — can illustrate issues or potential for a company/investment, but while the individual-contextual-narrative approach is appropriate to determine whether a company abused the human rights of a specific individual or group of individuals, it suffers from important limitations if the objective is to measure the human rights performance of a company in general terms. How to know whether abusive behavior in a specific case is the rule or just an exception? How to compare and aggregate information from different projects, factories, countries of operation, etc.? The move from the specific to the general is where business and human rights indicators step in to help guide and address social sustainability efforts. It is also where concepts around good governance originally developed for States should guide any company: transparency, impartiality, accountability, responsiveness…all concepts that have been extensively developed for States and that can be directly transposed into a private firm, making it clear that good governance is much more than having a diverse board.

Human rights standards and the experience in the UN on measuring implementation give very valid guidance on how to create indicators for Social “impact,” as well as for what ‘Good Governance’ looks like — both the ‘S’ and the ‘G’ in ‘ESG’ are woefully overlooked or under-addressed and the UN has been working on both of these — from different angles and in different entities — and on ensuring sustainable social development and good governance through the implementation of programs and policies for decades.

Partnership is about harnessing our potential and our knowledge. And, it is not because we work on sustainability that our knowledge is less specialized or less valuable. I mention this because I observe the tendency to think that anyone can deal with social sustainability issues as well as good governance… much as anyone will have a lay opinion on “human rights.” There is nothing wrong with the lay opinion — but if that is the basis for addressing social sustainability then, all of a sudden, the lay opinion can end up seriously hurting the people who are the “social” in ESG – as well as result in substantive fines and the loss of license. Thinking that this can be done without partnering with people who know, who have experience and expertise, is very much like taking the car to the vet, or the cat to the mechanic. There is so much knowledge not only in creating programs, but also on measuring impact and on reporting in the multilateral sector, which can be of use in, for example, supply chain due diligence.

Concepts such as what constitutes ‘Good Governance’ and how to measure social sustainability is the bread and butter and daily job of most people in the UN – in one way or the other. There is a need for this knowledge and methodology to be transferred into investor engagement and investment decisions, for example. Within this, there is also great potential for real partnerships to be made.

* Kristina Touzenis was formerly with IOM, she is now Director in the Sustainability Collaboration and a consultant for UNICEF.
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