Corporate Social Impact and ESG: Navigating the New Wave of Sustainability Reporting

Environmental, Social, and Governance (ESG) reporting is the next wave in sustainability reporting reframing how companies approach financial disclosures. This new wave is generating major shifts in corporate reporting, building on previous approaches that attempt to bridge the relationship between companies, society and the environment.

The ESG focus has the potential to provide transparent and standardised information that can aid investors looking to orient their portfolios toward sustainable finance or impact investing.

At its core, ESG reporting brings back to the fore fundamental questions like: Should we expect companies to address social issues and generate positive social progress? Or should they focus primarily on providing decent jobs, safe working environments, and developing people's capabilities to prosper?

The UNSW Centre for Social Impact's upcoming 'S' report will analyse the top 100 ASX companies and aims to shed light on these questions. By examining how companies report on the social dimensions of ESG, this research will help us understand if and how this new wave improves transparency and contributes to resolving debates about Corporate Social Impact expectations.

Understanding ESG and the 'S' Dimension

ESG frameworks provide standardized metrics for evaluating a company's ethical and sustainability performance. A Bloomberg report estimates that by 2030 ESG assets globally could reach $40 trillion, which offers considerable potential on the investment side. Australia, alongside Japan and Canada, is cited as a fast-growing region, despite its smaller-sized markets, and could at least in the short-term, keep expanding more rapidly than the global rate.

Within this ESG triad, the 'S' or social dimension often receives less attention than its environmental counterpart. This social aspect focuses on how a company complies with the legal workplace, human rights and industry social standards, how it prioritises and upholds its social responsibilities, and if it enhances the well-being of people and communities. It encompasses factors related to the health and well-being of individuals and the impacts of products, services, and operations on people across supply chains and communities. Through consistent measurement of their performance on S criteria, companies can demonstrate how they make positive social impacts and disclose any negative and unintended consequences.

Challenges in the ‘S’ Dimension

However, companies globally have struck several obstacles in striving to realise the ‘S’ in their reporting.

Their focus has been on the E dimension. Business has increasingly both initiated and heeded calls to progress on E reporting through mandated climate-related financial disclosure. Additionally, a task force comprising organizations such as the WTO, World Bank, OECD, and IMF has been working to establish a global carbon pricing framework and consolidate global standards.

Quantifying social outcomes is often more complex than measuring environmental metrics like carbon emissions. While environmental factors like carbon emissions are more readily quantifiable, social outcomes can be more challenging to measure.

There's also a persistent lack of clarity around benchmarks and standards – how these are set, measured, and interpreted. Tools such as the Global Reporting Initiative (GRI) has emerged as a valuable resource. The GRI offers best practices for sustainability reporting, helping companies understand their impacts on the economy, environment, and society – including human rights. By adopting GRI standards, organizations can enhance their accountability and transparency. However, despite nearly half of the world's stock exchanges providing or committing to provide ESG reporting guidance, many recognize that there's still a lack of convergence on ESG standards and formats, particularly regarding social factors.

This difficulty, coupled with the sensitive nature of social disclosures, has led to a perception that the 'S' dimension is overlooked in ESG reporting. However, companies that effectively address these social factors can make significant positive impacts, from creating safe and thriving workplaces to enhancing human rights through improved access to healthcare and decent jobs.

Navigating Megatrends and Australia’s Push for Mandatory Sustainability Reporting

In our Future World to 2024 , the CSIRO has identified key megatrends, including climate change adaptation, the push for net-zero emissions and biodiversity protection, and the need to unlock the human dimension by elevating diversity, equity, and transparency in decision-making across business, policy, and community spheres.

Australia is set to introduce mandatory sustainability reporting from January 2025, following global trends set by international organizations and regulatory bodies worldwide. This shift is driven by several factors. Investors are increasingly demanding portfolios that align with sustainable development criteria. There's also growing public distrust due to greenwashing, as evidenced by the Australian Competition and Consumer Commission's 2023 inquiry, which found that 57 percent of Australian businesses made potentially misleading environmental claims.

Rethinking ESG and Corporate Social Impact

ESG has faced criticism from various angles. Some argue it doesn't do enough to drive real transparency or orient companies toward effecting meaningful positive social impacts. Others contend it diverts investors' attention from crucial financial information. Robust ESG reporting can improve risk management and maximize long-term value creation, benefiting both companies and society at large.

At the Centre for Social Impact, with a fifteen-year history of developing social impact strategies, we suggest a broader view of Corporate Social Impact that considers how all ESG dimensions shape societal outcomes.

This expanded perspective includes both direct impacts, such as employment and the provision of essential products and services, and indirect effects on well-being and community thriving. It also encompasses contributions to sustainable development that ensure the prosperity of future generations. While ESG frameworks and tools like impact-weighted accounts can help identify companies generating beneficial societal solutions, truly making a positive social impact requires integrating social impact strategies into core business models.

As we navigate this new era of corporate responsibility, the evolving landscape of ESG and Corporate Social Impact reporting will play a crucial role in shaping a more sustainable and equitable future. By providing a clearer picture of a company's overall impact, these reporting frameworks can guide investors, consumers, and policymakers in making informed decisions that drive positive change.