To start with, I would like to give thanks to you, readers of this column for your tons of feedback. I value your feedback and consider them as fresh piece of ideas from which I am at your service. In fact, Jim Trinka and Les Wallace, the authors of “A Legacy of 21st Century Leadership” aptly said “feedback is a gift. Ideas are the currency of your next success. Let people see you value both feedback and ideas.” It is on this note that I am engaging your attention once more on our series of articles on Environmental, Social and Governance (ESG). Issues of Environmental, Social and Governance (ESG) are very important to policymakers, investors, consumers and many other interest groups who believe in sustainability which aims at a good life for all, now and far into the future.
As one of the pillars of the Environmental, Social and Governance (ESG), the social sustainability aspect focusses mainly on how companies manage their relationships with their employees, customers, suppliers and the communities in which they operate. Social sustainability is people-centred and at the heart of the sustainability agenda. It appreciates the fact that human beings are products of different cultures and orientations and, therefore, gives attention to diversity, equity and the inclusion of everyone to make the world a better place for the present and the future generation. Based on this understanding, the question worth asking is, what are the specific issues which define employees, customers, suppliers and the communities as the key stakeholders of social sustainability?
Employees
I believe in the thoughts of an American businesswoman, Anne M. Mulcahy who said that “employees are a company’s greatest asset- they’re your competitive advantage. You want to attract and retain the best; provide them with encouragement, stimulus, and make them feel that they are an integral part of the company’s mission.” As companies’ greatest assets, social sustainability principles advocate that businesses must create fair, safe workplaces that promote wellbeing of employees by understanding what they need as well as where they live and work. The ability of businesses to promote safe workplaces can be daunting with all the intricacies of people management. This is because businesses operate in different economic sectors like agriculture/forestry, financial services, manufacturing, mining or construction industries where they face different challenges. As a result, there are different dynamics companies must deal with to satisfy employees’ interest which comply with environmental and social governance (ESG) sustainability standards.
Nonetheless, the common ground is that they must align their policies with metrics or benchmarks which consider issues such as equity in pay (remuneration), mental health, regular training of employees as well as effective grievances and disciplinary procedures which are in line with the ESG principles. Regarding mental health and wellbeing, employers must create an inclusive environment where employees can openly talk about any mental health and wellbeing issues they are experiencing without any fear of stigmatization or unfair termination. Employers must also make provisions for diversity and inclusion in their workplace policies where employees can believe that everyone has an equal opportunity.
A school of thought on diversity and inclusion asserts that equitable employers who respect the unique needs, perspectives and potential of all their employees perform better than their competitors. When your company’s practices and culture give an assurance to employees that they will be treated fairly, regardless of their ethnicity, age, beliefs, disabilities, gender or eschew all forms of discrimination, they will feel safe and bring their full and unique selves to work. That way, companies will also benefit from the employees’ mix of skills and depth of experience that may not otherwise be achieved. It is worth acknowledging that multinational companies have in fact accommodated diversity and inclusion in their workplace policies and same must be adopted by other companies while making room for their unique industry peculiarities.
Suppliers
It is indeed, common knowledge and practice that companies enter into service agreements or contracts with other companies to help them meet their customers’ expectations. Generally, those other companies or individuals are basically referred to as suppliers. In the context of this piece, suppliers mean companies that provide goods or services that help organisations meet their Environmental, Social and Governance (ESG) responsibilities. At one point or another, companies are suppliers in the value chain as they relate with one another. But a company can only qualify as an Environmental, Social and Governance (ESG) supplier on condition that it integrates sustainability, social responsibility, and ethical governance practices in its operations.
The interdependence between companies maps out suppliers into Environmental Services, Social Responsibility Services and Governance Services. The Environmental Services Suppliers offer services which include waste management, recycling, emissions reduction, training or education on climate change and other related issues. These suppliers can be very instrumental in ensuring that companies and employees comply with environmental regulations in their services to the public. In the case of Social Responsibility Services, these suppliers help other companies with the design and implementation of programs which address issues bordering on weak stakeholder engagement, human right violations, unfair labour standards or diversity and inclusion.
Concerning Governance Services, these are suppliers or consulting firms which help companies to improve their governance practices and compliance with regulations. Consulting firms or consultants in this category provide services such as policy development and review, board evaluations and training. Governance services also consider professionals and other technical service providers in risk management, accounting and auditing or legal services among others. It is worth noting that suppliers are equally exposed to many risks in their services to other companies. Companies must, therefore, develop checklists for monitoring suppliers’ services to help them address any non-compliance issues that may arise.
Consumers
Consumers are also one of the key stakeholders in the Environmental, Social and Governance (ESG) agenda. Consumers can either be persons or organisations and determined by the industry or the nature of business being undertaken. Consumers, in fact, wield a lot of power since they make the purchasing decisions. Beyond pricing, consumers of food products, for instance, now want to know more about the manufacturer, their way of working, where they source raw materials and the impact of their operations on the environment.
As consumers are increasingly becoming aware of their ESG rights, they are more likely to buy from companies or do business with others which are ESG compliant. They are also more likely to avoid companies which score poorly on human rights, ethical supply chain metrics, or are perceived as having negative environmental impacts in their operations. There again, consumers are also concerned about management of their privacy (personal data). The crux of the matter is that consumers want companies to go beyond the financials(figures) and disclose non-financial information on Environmental, Social and Governance (ESG) in their reports. Transparency in the disclosure of non-financial information regarding ESG helps consumers to make better purchasing decisions and equally improve companies’ reputation.
Communities
Communities in which businesses are located are directly affected by their operations. The impacts of companies’ operations in the host communities vary and depend on the nature of their businesses. Operations of industries such as agriculture/forestry, manufacturing, mining, construction or financial services can have direct or indirect negative impacts in the communities. The challenge we face in some occasions is that there are potential investors who explore opportunities to invest in communities but fail to obtain the initial social licence of the community people which is even more vital than other permits or regulatory licences. By social licence, I mean the total grant of goodwill from the community which gives a company permission to operate in their local environment. Actually, it’s not given by any one individual or few opinion leaders seeking their personal interest or an institution – instead, it is created through collective agreement based on shared values and interests in line with Environmental, Social and Governance (ESG) standard practices.
To be successful and ensure long-term sustainability, companies must consider the effects of their actions have on communities. I believe that when companies take proactive steps to address issues of social concerns and engage directly with communities, they win their support, thus improve their reputation, reduce risks of their investments and create long-term value for all.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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