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When thinking about Environment, Social and Governance (ESG) practices, the ‘S’ is often overlooked. This is potentially because it’s harder to measure social impact, unlike carbon footprint in the ‘E’ for example. But the ‘S’ plays a vital role in the ESG acronym, with investors and consumers alike demanding that organisations are more socially responsible.

More than just a nice to have, organisations that track their social impact and proactively try to address inequality reap the benefits from investors, consumers, and employees. Whilst ignoring it can create a backlash from the same stakeholders. So, what are some of the opportunities when it comes to socially responsible investing, and what are the threats of disregarding it?

According to Bank of America Merrill Lynch, companies with better social impact records had greater three-year returns and were more likely to become “high-quality” stocks. The organisation also found that companies were less likely to experience bankruptcy, or for stocks to substantially drop. This highlights that not only does measuring social impact positively affect communities – but it is good for business too.

Investors of the future share the same sentiment, with research by JPMorgan Private Bank finding that 86% of millennials — a generation set to inherit $30 trillion (£22.7 trn) from their parents over the next 30 years — agree that sustainability is an investment priority. Furthermore, UBS found that women — who hold 32% of global wealth — were set to invest more than $2.3 trillion (£1.74 trn) for social causes in 2021. As future leaders focus investments on business areas that have a positive social impact, organisations need to follow their lead.

Businesses that ignore social impact do so at their own peril, as online fashion retailer Boohoo discovered. More than £1.5bn was wiped off the retailer’s market value in just two days, amid concerns over factory conditions, with workers earning below the minimum wage and operating without proper equipment to guard against Covid-19. Later in the year, the company again was criticised for squalid and dangerous working conditions in Pakistan, with garment workers earning 29p per hour during 24 hour shifts.

Not only is this morally objectionable, but brand reputation is also severely impacted alongside profits too. More than half (53%) of UK consumers said they would never buy from a brand again if it was accused of working with unethical suppliers, doing untold damage to business. And with distrust of the corporate sector continuing to rise, organisations need to work harder to gain consumer confidence and operate more ethically.

Consumers are more aware than ever before of the social impact organisations can have and they aren’t afraid to boycott brands entirely. The advent of cancel culture and social media means that brands can no longer hide shady operations and are increasingly being held accountable for their actions.

On the flip side, organisations that are mindful of their social impact and invest responsibly are more likely to be rewarded by customers. Research by Deloitte found that nearly one in three (30%) consumers chose brands that have ethical practices and values, with a similar amount (28%) saying they’d stopped purchasing certain products entirely due to concerns in the same area.

Organisations need to be more socially responsible in managing and vetting their supply chains. Whilst this conversation has gained traction in the environmental arena, such as clamping down on greenwashing practices, the same has to be applied to the social impact of supply chains.

With 40 million people subject to modern forms of slavery globally, 71% of which are women and girls, more has to be done to tackle inequality. Pleading ignorance to socially unethical practices, or businesses that try to remove themselves from the equation by blaming third parties, won’t wash with increasingly savvy investors and customers. Businesses need to be more responsible for the full life-cycle of what they sell and manage the entire value chain.

Organisations that don’t take social responsibility seriously aren’t just risking investment opportunities and engagement of customers, but also their ability to attract and retain talent. Employees are looking for companies that support their values, with 64% of millennials saying that they wouldn’t take a job at a business that wasn’t socially responsible.

Organisations need to ensure they have robust measurements in place, reporting on how they are taking social accountability for their business’ actions. By ensuring policies and practices are aligned with international standards, it sends a strong message to employees, investors, and customers alike that the organisation is mindful of their social impact and is working hard to address any inequality.

Ignoring the ‘S’ can have a devastating impact on both the bottom line and society, creating a ripple effecting on everything from investment opportunities to brand loyalty. It’s important that organisations operate responsibly and leave a positive legacy. Not only does it contribute to improved social outcomes, but it also provides compelling growth opportunities.