How and why to take the ‘social’ component of ESG seriously
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By Simon Moss, CEO of AyasdiAI.
The efforts of environmental, social and corporate governance (ESG) organizations have produced mixed results. Businesses tend to place more emphasis on the environment than on social issues. Meanwhile, the wealth gap – or wealth inequality – continues to widen. According to the Federal Reserve, as of the third quarter of 2021, the top 10% of US households owned $51.39 trillion, while the bottom 50% owned only $3.42 trillion. That is a huge gap that is growing, not narrowing, increasing the number of vulnerable populations and polarizing democracies while capital undermines social virtues.
The pandemic has magnified these global inequalities and vulnerabilities. As more than 20 million Americans lost their jobs in 12 months of the pandemic, top 10 billionaires have increased their wealth with over a trillion dollars. So, what does this mean for those trying to implement ESG in their organizations, and what needs to be done? Has the system failed? Was Marx right that capitalism would eventually eat itself up and sow itself into a despicable form of feudalism? Or can the system rebalance, self-regulate and reaffirm the social contract that underpinned the economic prosperity that fueled democratic capitalism?
This is where the emphasis on ESG within business models and corporate social contribution can be a catalyst to reverse trends that are beginning to undermine capitalist democracies.
What does ‘social’ actually mean when it comes to ESG?
The “E” of ESG has a clear definition, and that makes it easier to pick a goal or project to focus on; maybe it’s removing plastic from the ocean or fighting desertification by planting trees. It’s easy for marketing and messaging.
But with the ‘S’ it’s not so easy; it’s a much broader definition that can be more difficult to wrap our heads and arms around. So to go from the theoretical to the practical, we can split the S (for social) into three main components: education, health and protection from exploitation.
Education: This is the most important, the most talked about and has been in constant decline in recent decades. Recent research show that US test scores are now below the global average. The United States — and the West in general — invests less in human capital than other developed countries, leading to a loss of significant competitive advantage, especially in mission-critical STEM categories.
Exploitation: Human trafficking includes child exploitation, slavery, immigrant exploitation, elder abuse and more. Because of the financial transactions underlying it, what exploitation has done is reduced people to expendable parts of a system. They are nothing more than dollar signs for traffickers, and this has served to dehumanize huge populations of this world. The financial system has been arbitrated to facilitate this exploitation after decades of misdirected investment, a lack of creative and energetic regulation, and failure to capitalize on the technological advancements that have made adversaries so adept.
This is where the banks and the financial sector really need to step up. These are not compliance or regulatory issues, but moral behavior challenges that industry leadership must address. The tools to add transparency in the markets are becoming more and more available; therefore, social impact should not be an expectation of the “rule of law”. It should be a mission that carries out the spirit of the law to protect increasingly vulnerable populations exploited by those who use the financial system to facilitate their crimes.
Global health: In general, the strong mental and physical health of the population is essential, and it is clear that it is in great difficulty. For example, an sample of statistics from 2020 reveal the effect of pandemic-related isolation on mental health. Suicides tripled Los Alamos, New Mexico during the first eight months of 2020. In Fresno, California, suicides increased by 70% in June 2020 compared to June 2019. And the Center for Disease Control and Prevention (CDC) reported a 31% increase in emergency room visits for mental health reasons among 12- to 17-year-olds between March and October 2020, compared to 2019.
ESG: getting serious about change
The social (S)pillars of education, overcoming exploitation and health all increase the potential for environmental success. An educated, engaged, healthy and respectful society takes environmental issues seriously. Of course, this is not a situation with an easy fix. We are talking about decades of systemic, institutional and societal deception in focus.
This complex group of problems is difficult to solve, so efforts are often patchy. We support a few schools, or we hand out a few grants, but we don’t fundamentally solve the problems. There is no substantial increase in an individual’s ability to be wealthy, educated and contribute to the greater whole. Instead, we rely on other countries to produce our goods and build the latest iPhones for us, even if the people doing the work are children.
If companies want to create positive change, they must focus on these social pillars.
Some have revenues equal to the gross domestic product (GDP) of fairly large countries. They have a material influence on the direction of the species on this planet. They can use their power for radically important causes, or they can abdicate their responsibility, citing the need to just align themselves with their regulators and shareholders.
Making a real social difference
While some organizations see ESG as just another way to polish their brand, there are many companies that really want to make a difference in the world through their ESG efforts. There is too much emphasis on environmental causes – not necessarily wrong, but at the expense of the social pillars that support society and uplift the most deprived. Companies have a new, real opportunity to make a global difference in addressing education, exploitation and health needs around the world.
Simon Moss is the CEO of Symphony AyasdiA with strategic and P&L leadership responsibility. Previously, Simon Mantas led, led multiple other companies as a founder, CEO, or director of the board, and most recently was global head of AI and automation for Infosys Consulting.
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