Managing Social Impacts is a Big Bite for Companies

A responsible approach to environmental, social, and governance impacts, or ‘ESG factors‘, has quietly entered the business world, but the echoes of that entry are quite loud. The European Union laid the groundwork for significant changes in its development strategy titled Prosperity, People, Planet in 2019. Within these three pillars of development, the EU has clearly established the social component as equally important as the environmental one.

The new Corporate Sustainability Reporting Directive (CSRD) clearly stipulates that companies must address a thorough assessment of their impacts on the environment, as well as on people, including human rights. The requirements of the European Sustainability Reporting Standards (ESRS), which we expect to be adopted mid-year, include very complex requirements for impact verification, the existence of strategic plans, and evidence of the inclusion of social criteria in the company’s operations.

It is a natural instinct for companies to resist new regulations as they see them as burdens and imposed obligations, which are, of course, always associated with increased investments in financial, human, and time resources. Can we, in the ‘era of sustainability’, view regulatory requirements as a great opportunity to accelerate the development of business resilience, competitiveness, and the long-term sustainability of our organization?

The social component relies on three pillars of our value chain: the sustainability of the working environment, which includes the supply chain, sustainability in relationships with customers or users, and the sustainability of the communities in which we operate, with an emphasis on ensuring economic sustainability. The regulation mandates a thorough assessment of how we treat human rights in all these segments.

In ‘Western circle’ societies, we tend to conclude that we have no issues with human rights in our society and organization. However, companies that have engaged in serious development of the social or ‘S’ component of the ESG strategy have already identified serious ‘gaps’ in all segments during their GAP analysis – from the policies and procedures they use, through their inclusion in business strategies to practical application, data collection, or monitoring throughout the value chain.

The principle of ‘we do everything in accordance with the law’ is no longer remotely sufficient. The responsibility and sustainability of a company are reflected in how we truly verify our impacts, especially negative impacts, and what we undertake to improve socially responsible decisions and operations.

Conducting a thorough assessment of social impacts and creating GAP analysis on which we must base our ESG strategy is not an easy task nor is it painless for organizations. It requires a very high level of understanding and awareness of impacts on human rights and human well-being, complex analyses, and the openness of management to accept the organization’s responsibility for these impacts. Ultimately, it also requires the ability for transparent reporting. And we will no longer be able to report on sustainability and impacts without a comprehensive ESG strategy. If we approach these issues in a timely and dedicated manner, we can enable our organization to gain a deeper understanding of its own impacts, deepen our relationships with stakeholders, and improve our practices in the working environment, value chain, product development, and corporate responsibility.

The results can be truly significant: a stronger ability to attract and retain quality employees, more effective risk management, increased market competitiveness, and a stronger capacity for innovation.

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