How and why to take the ‘social’ component of ESG seriously

By Simon Moss, CEO of AyasdiAI.

Organizations’ efforts on environmental, social, and corporate governance (ESG) have created mixed results. Companies have tended to put a stronger emphasis on the environment than on social issues. Meanwhile, the wealth gap — or wealth inequality — continues to expand. According to the Federal Reserve, as of Q3 2021, the top 10% of U.S. households held $51.39 trillion, while the bottom 50% held just $3.42 trillion. That’s a massive chasm that is growing, not shrinking, increasing the number of vulnerable populations and polarizing democracies as capital undermines social virtues. 

The pandemic has magnified these global inequities and vulnerabilities. As more than 20 million Americans lost their jobs in 12 months of the pandemic, the top 10 billionaires increased their wealth by upwards of one trillion dollars. So, what does this mean for those trying to implement ESG in their organizations, and what needs to happen? Has the system failed? Was Marx right that eventually capitalism would eat itself and metastasize into a vile form of feudalism? Or can the system begin to rebalance, self-regulate and reaffirm the social contract that underpinned the economic prosperity that democratic capitalism stimulated?

This is where an emphasis on ESG within the operating models and the social contribution of corporations might be a catalyst to reverse trends that are beginning to undermine capitalist democracies. 

What does ‘social’ really mean when it comes to ESG?

The “E” of ESG has a straightforward definition, and that makes it easier to pick a cause or project to focus on; maybe it’s removing plastic from the ocean or combating desertification by planting trees. It’s easy for marketing and messaging. 

But with the “S,” it’s not as straightforward; it’s a much broader definition that can be harder to wrap our head and arms around. So, to move from the theoretical to the practical, we can break down the S (for social) into three main components: education, health, and protection from exploitation. 

Education: this is the most important, the most discussed, and in constant decline over the last couple of decades. Recent studies reveal that U.S. test scores are now below the global average. The United States — and the West in general — is investing less in human capital than other developed countries are, leading to loss of significant competitive advantage, especially in mission-critical STEM categories. 

Exploitation: Human trafficking includes child exploitation, slavery, immigrant exploitation, elder abuse, and more. Due to the financial transactions underlying it, what exploitation has done is reduced people to fungible pieces of a system. They’re nothing more than dollar signs to traffickers, and this has served to dehumanize enormous populations of this world. The financial system has been arbitraged to facilitate this exploitation after decades of poorly focused investment, a lack of creative and energetic regulation, and a failure to leverage technology advances that adversaries have become so adept with. 

Here the banks and financial industry really must step up. These aren’t compliance or regulatory issues, but moral conduct challenges that the leadership within the industry must address. The tools to add transparency into the markets are becoming increasingly available; therefore, social impact should not be a “rule of law” expectation. It should be a mission executing the spirit of the law to protect increasingly vulnerable populations exploited by those who use the financial system to facilitate their crimes.

Global health: Overall, the strong mental and physical health of the population is essential, and it’s clear that it’s in dire straits. For instance, a sampling of statistics from 2020 reveal the effect of pandemic-related isolation on mental health. Suicides tripled in Los Alamos, New Mexico during the first eight months of 2020. In Fresno, California, suicides rose 70% in June 2020 compared to June 2019. And the Centers for Disease Control and Prevention (CDC) reported a 31% increase in the number of 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. A well-educated, engaged, healthy, and respectful society takes environmental issues seriously. This is obviously not a situation with an easy solution. We’re talking about decades of systemic, institutional, and societal misdirection in focus. 

This complex group of issues is difficult to solve, so efforts are often piecemeal. We support a couple of schools, or we hand out a few scholarships, but we’re not fundamentally solving the problems. There’s no substantial increase in an individual’s ability to be prosperous and educated and to contribute to the larger whole. Instead, we’re relying on other countries to manufacture our goods and build us the latest iPhones, even if the people doing the work are children. 

If corporations want to create positive change, they need to focus on these social pillars. 

Some have revenues equaling the gross domestic product (GDP) of reasonably large nations. They have a material influence over 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 merely align with their regulators and shareholders. 

Making a real social difference

While some organizations have seen ESG as just another way to burnish their brand, there are many companies that truly want to make a difference in the world through their ESG efforts. There’s an over-emphasis on environmental causes — not wrong, necessarily, but to the detriment of the social pillars that hold up society and uplift those most in need. Companies have a new, real opportunity to make a global difference in addressing education, exploitation, and health needs worldwide.

Simon Moss is the CEO of Symphony AyasdiAI with strategic and P&L leadership responsibility. Previously, Simon led Mantas, led multiple other firms as founder, CEO, or board director, and most recently was global head of AI and automation for Infosys Consulting.