Sustainability has become a mainstay in the business world, with Environmental, Social, and Governance (ESG) factors taking centre stage. While the “E” and “G” have long been priorities, the “S” (the social element) is also a critical driver of long-term value creation and stakeholder trust. A recent survey found that over 70% of investors now view social factors as important as environmental and governance issues when making investment decisions. The reason for this shift is simple – organisations realise that their impact on employees, customers, communities, and other stakeholders is vital to their overall sustainability and resilience.
Similarly, organisations can no longer afford to overlook the “S” in ESG. Businesses that genuinely invest in the well-being and engagement of their stakeholders will outperform their competitors. They’ll reap the rewards of better reputations, higher talent retention, loyal customers and increasing brand equity. In this era of heightened scrutiny and changing consumer preferences, organisations that prioritise social responsibility will be the ones that thrive. Understanding the unique values of the “S” can help position your company for long-term success and contribute to a more sustainable, equitable future.
In the sections ahead, we will explore the importance of the “S” in ESG, discuss the business benefits of investing in stakeholder wellbeing, and share some practical strategies for your firm to prioritise social responsibility.
What’s the “S” in ESG?
Before we go further, let’s make sure we’re on the same page about what the “S” actually represents. The “S” in ESG refers to the social impact and responsibility an organisation demonstrates towards its various stakeholders. This encompasses a wide range of considerations, including:
- Employee wellbeing – Fair compensation, benefits, work-life balance, and creating a safe, inclusive workplace.
- Diversity and inclusion – Ensuring equal opportunities and representation across gender, race, age, and other demographics.
- Customer satisfaction – Prioritising quality service, and addressing consumer needs and concerns.
- Community engagement – Supporting and investing in the local communities where the organisation operates.
- Ethical supply chain management – Ensuring suppliers uphold strong social and labour standards.
Essentially, a strong focus on “S” helps create value for a broader set of stakeholders, not just shareholders.
The Business Case for Investing in Stakeholder Wellbeing
Over the years, studies have shown that companies that invest in their stakeholders’ well-being tend to outperform their peers. A report by the Harvard Business Review found that firms with strong stakeholder engagement and social responsibility practices enjoyed higher levels of profitability, productivity, and market valuation. These companies are more likely to attract and retain top talent, build stronger customer relationships, and mitigate reputational risks associated with social issues.
An example is one of the world’s most valuable tech companies. Apple has placed a strong emphasis on the social aspect of ESG. The company offers competitive compensation, generous benefits, like healthcare and parental leave, and collaborative work environments to support employee satisfaction and retention.
Similarly, in the African context, Dangote Cement, one of the largest cement producers in Africa, has also prioritised social factors as part of its ESG strategy in Nigeria. Dangote works closely with small and medium-sized enterprises (SMEs) in its supply chain, providing training, financing, and business development support. This has empowered local vendors and fostered an inclusive ecosystem. Likewise, this has helped strengthen Dangote’s social licence to operate.
Practical Strategies for Investing in Stakeholder Wellbeing
To effectively prioritise stakeholder wellbeing, organisations can implement the following strategies:
- Conduct regular stakeholder surveys and feedback mechanisms to understand their needs and concerns.
- Develop comprehensive employee-centric policies, such as fair compensation, generous benefits, and work-life balance initiatives.
- Establish lucid supplier and vendor screening processes to ensure ethical and sustainable practices throughout the supply chain.
- Engage with local communities through community development efforts, volunteering, and collaborative projects that address their pressing needs.
- Adopt transparent and accountable governance structures that promote stakeholder engagement and decision-making.
While the rationale behind investing in stakeholder well-being is compelling, it’s important to acknowledge that this process has its challenges and critics. Sceptics argue that prioritising social factors could compromise financial performance or shareholder returns in the short term. However, boards must carefully consider that true sustainability is a long-term endeavour. There is evidence that a stakeholder-centric approach can enhance long-term value creation and sustainability. An organisation with strong social responsibility practices often outperforms its peers in profitability, productivity, and market valuation.
The Path to a Sustainable Future
The key is balancing social priorities with financial objectives strategically and transparently. Organisations must be wary of “bluewashing” or “social washing” – the practice of making misleading claims about their social responsibility efforts. Transparent reporting, third-party audits, and authentic stakeholder engagement are crucial to ensuring the credibility and effectiveness of these initiatives. So, rather than viewing social responsibility as a cost centre, top organisations embed it as a core part of their business model. They recognise that by genuinely investing in the well-being of employees, customers, communities, and other stakeholders, they can build a more resilient, innovative, and profitable enterprise over the long run.